Mr. David Alao is Acting Asset Manager of Leadway Pensure and a member of the Pension Fund Operators Association of Nigeria (PenOp). In this discourse he maintains that pension funds investment in government securities should be channelled into infrastructure development.

A total of 77 per cent of pension fund is invested in federal government instruments and about four per cent in corporate bonds while about six per cent is in money market. If the federal government instruments can yield returns of 22 per cent and money market pays 18 per cent, why should I invest in money market?

In recent times the exposure of PFAs in equities has declined. In December 2015 PFAs had about 9.75 per cent in  equities but recently,  it is about 8.12 per cent. In 2015 and 2016 the capital market did not do well. Even as the market has improved, PFAs did not increase their asset allocation.

Between  2015 to 2017, the exposure in government bonds and treasury bills has increased from 66 per cent to 77 per cent. State government bonds have come down from 2.8 per cent to 1.2 per cent. Investment in domestic money market instruments has come down from about 11 per cent to just about 5 per cent simply because federal government bonds are offering more returns.

Economic rational business So the certainty that an FGN bond that can bring 22 per cent and will not default is the reason for the preference.

So the certainty that an FGN bond that can bring 22 per cent and will not default is the reason for the preference.

Read full content here: Vanguard