Logo of National Pension Commission (PenCom)
The National Pension Commission (PenCom) has pegged the amount of
pension asset to invest in infrastructural projects at N5 billion. This
provision, which is contained in the draft guidelines released by
PenCom, is expected to end the lingering controversy on whether or not
pension fund asset should be invested in infrastructural project.
The commission also said a minimum of 60 per cent of the investment should be in projects within Nigeria. The commission, in a draft of its new investment guidelines, released to pension fund Administrators (PFAs) and Custodians for comments and recommendations said the investment could be made through eligible bonds, Sukuk. It added that the investment should be subject to requirements such as the award given to concessionaire with good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act (ICRC Act) and any regulation made pursuant thereto and certified by the Infrastructure Concession and Regulatory Commission (ICRC) .
The award should be approved by the core infrastructure projects, whose business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment of pension funds.
PenCom said the bonds or sukuks issued to finance the infrastructure project should, in addition to the requirements of section 5.2.2 of the guideline, which has pegged the investible asset value atN5 billion , also have robust credit enhancements such as being guaranteed by the federal government or eligible bank/ development finance institution and should have a maturity date that precedes the expiration of the concession .
PenCom in the guideline also said the bond should have a feasible and enforceable redemption procedure in the event of project suspension, cancellation or in the case of regulated sectors, when changes in regulatory or policy decisions make the project to differ significantly from its original financial projections.
The commission added that where infrastructure projects are financed through infrastructure funds, pension fund investments should be subject to the additional requirements such as in addition to the value of investable fund being not less than N5 billion,the infrastructure fund should have well defined and publicised investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other necessary information.
The guideline also requires that all annual financial statements of the Fund should be audited by reputable firms of chartered accountants, the infrastructure fund should have satisfactory pre-defined liquidity and exit routes such as initial public offering (IPO) sale to other private equity funds, trade sale, sale to a strategic investor among others. It said the funds should be managed by experienced fund managers, versed in infrastructure.
Other requirements for investment of pension fund in infrastructural development set by the new PenCom guideline are that the key principals in the investment namely the chief executive officer (CEO) and chief investment officer (CIO) of the fund manager should, each have at least 10 years relevant and continuous experience in infrastructure financing or investment management; and shall not exit the fund without prior notice to the PFAs, which shall not be less than 90days from the exit date. The‘exit clause’ according to the guideline should be expressly stated as a condition in the investment agreement between the PFA and the fund manager.
The guideline further provided where an infrastructure fund does not have development finance institutions as co-investors, but the fund manager has a minimum investment manager rating of BBB issued by a rating company registered or recognized by the Security and Exchange Commission (SEC),the fund manager should retain a minimum investment of three per cent of the infrastructure
" Where the infrastructure fund has development finance institutions or multilateral development finance organizations as co-investors, the fund manager should retain a minimum of one percent of the infrastructure fund.
"The fund shall have an advisory board with independent representatives of institutional investors being in majority, it further stated.
According to the guideline, prior to investment as well as during the tenor of investment in any infrastructure fund, PFAs are to ensure that the above-mentioned advisory board has responsibility over audit functions regarding. the evaluation of projects prior to investment;transactions with parties related to the infrastructure fund manager.
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