All posts by Ooreofe Kalejaiye

Leveraging Pension Funds for Infrastructure Development in Nigeria: Roundtable June 2023


The infrastructure funding gap remains a significant impediment to sustainable economic growth and development in Nigeria. However, innovative financing solutions can unlock a wealth of investment potential to bridge this gap. One of the most significant yet untapped sources of funding is Nigeria’s burgeoning pension funds.


On Tuesday, June 20, 2023, a roundtable was convened to discuss infrastructure investments by pension fund administrators (PFAs), measures to increase investments to address infrastructure gaps, and issues pertaining to market reach. Chapel Hill Denham (CHD) organized the event with support from the United States Agency for International Development (USAID) and the United States Government’s Power Africa and Prosper Africa initiatives, in conjunction with the Pension Funds Operators Association of Nigeria (PenOp). In addition to the PFAs, participants included representatives from the National Pension Commission (PENCOM), Securities and Exchange Commission (SEC), FMDQ plc (FMDQ), Association of Issuing Houses of Nigeria (AIHN), Association of Corporate Trustees of Nigeria (ACT), pension fund custodians, and KPMG Nigeria.

The Promise of Pension Funds

Nigeria has a rapidly growing pension fund industry. As of March 31, 2023, pension fund assets under management in Nigeria totalled over N15.582 trillion. While a significant portion of these funds is currently invested in government securities, infrastructure investments already equate for up to N3 trillion of the total. However, this still represents an untapped opportunity for pension funds to secure attractive long-term returns while also contributing to national development.

Chapel Hill Denham explained that infrastructure investments in Nigeria are) represented by state (infrastructure) bonds, infrastructure corporate bonds in Naira (NGN) and US Dollars (USD, green bonds, infrastructure funds (of which CHD’s own Nigeria Infrastructure Debt Fund is the largest), and infrastructure equity. In aggregate, total investment has grown from N75 billion in 2010 to N3.2 trillion in 2022 (including only the free floats[1] of the infrastructure equity stocks).

Challenges and Risks

For pension fund managers, the step towards investing in infrastructure is not without challenges. Concerns about risk, particularly political risk and regulatory uncertainty, have often kept these funds on the side lines. Additionally, a lack of bankable, investment-ready projects can make it difficult for pension funds to find viable opportunities.  However, Nigeria’s pension funds have demonstrated that where opportunities are shown in two of the three infrastructure asset classes – operating infrastructure equity and infrastructure debt – they will invest.  They viewed the third infrastructure asset class – development and construction equity – as being more specialist and risky as an asset class.

Policy Framework for Pension Fund Investment in Infrastructure PENCOM has made efforts to enable pension funds to invest in infrastructure through investment regulations, which allow PFAs to invest a portion of their total assets in infrastructure funds. However, Nigeria remains one of five countries globally to still have a limit on infrastructure investments.  In all other countries, the infrastructure investment allocation is unconstrained.

In addition, the pension funds present at the convening noted that with an active transfer window, a facility that allowed up to 25% of a Retirement savings Account (RSA) fund to be withdrawn if the RSA holder loses their job, and an ability to withdraw funds for a house purchase, the levels of liquidity that were required to be maintained constrained the PFAs’ ability to invest for the long-term.

Steps to Encourage Pension Fund Investment in Infrastructure

  1. Risk Mitigation: Addressing the risk concerns of pension fund managers is critical. By recognising that there are three infrastructure asset classes, the pension funds recognise the benefit of focusing on infrastructure debt and operating infrastructure equity to help to protect their investments and increase their comfort with infrastructure projects.

  2. Capacity Building: Many pension funds need to improve their technical capacity to evaluate and manage individual infrastructure investments. Therefore, selling diversified instruments that package infrastructure projects to pension funds has been an effective way of bridging this gap. In addition, training programs, technical assistance, and knowledge-sharing platforms can help pension fund managers develop the necessary skills and knowledge.

  3. Project Preparation: Developing a pipeline of operational infrastructure projects is key to attracting pension fund investment. This involves project identification, feasibility studies, project structuring, and construction.

  4. Collective Investment: There are currently two types of infrastructure portfolio in Nigeria. The roundtable recognised the role that states (e.g. Lagos) have in raising infrastructure bonds to invest in economic and social infrastructure, and the role that investment trusts, such as CHD’s Nigeria Infrastructure Debt Fund, can play with a specialist asset manager building a portfolio of investments.

  5. Regulatory Reforms: Continued regulatory reforms can help to create an enabling environment for pension fund investment in infrastructure. This may include revising investment guidelines, improving transparency, and strengthening the regulatory framework for infrastructure funds. The roundtable discussed a number of potential reforms in relation to both PENCOM and SEC regulations.

  6. Foreign Exchange Management:  All participants recognised the importance of avoiding infrastructure projects that ‘introduced’ financial risk by financing NGN cashflows in any foreign currency.

  7. Fund Manager Selection:  Many pension funds need to develop their expertise in selecting Fund Managers. Consequently, there is an opportunity to provide additional training and support in this area.

  8. Investment Returns:  The Pension Fund Managers and PenOp discussed the importance of focusing investors on long-term returns rather than having to report and rate performance on a month-by-month basis.

Looking Ahead

Tapping into Nigeria’s pension funds for infrastructure investment represents a promising solution for bridging the country’s infrastructure funding gap. It’s a win-win scenario: pension funds can secure stable, long-term returns while contributing to the country’s economic development. However, realising this potential requires concerted efforts to mitigate risks, build capacity, prepare bankable projects, and create an enabling regulatory environment.

By leveraging the strength of collaboration and learning from global best practices, we can help to unlock a powerful new source of infrastructure finance in Nigeria, effectively mobilise domestic resources, like pension funds, to address Nigeria’s infrastructure needs and fuel sustainable economic development.

[1] Free floats are the shares of a company that can be publicly traded and are not restricted.