Transcript PENCOM ALTERNATE ASSETS SEMINAR

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PENCOM
ALTERNATE ASSETS SEMINAR
SETTING THE TONE
By: Dick Kramer
March 5, 2008
Outline
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Perspective and Purpose
Current Situation
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Economic Outlook
Investment Climate
Pension Reform Evaluation
Future Potential and Objectives
The Way Forward
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Perspective and Purpose
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Buoyant Nigerian economy against backdrop of
global slowdown
Economic vulnerability due to
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Dependence on petroleum
Major investment barriers
Potential loss of momentum
Risk of market bubble/meltdown
High potential for pension reform success
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But
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Early in learning curve
Largely undiversified
Vulnerable to market volatility
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Today’s Focus
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Based on global experiences, explore asset
diversification
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Real estate
Infrastructure
Bond markets
Private equity
Global investments
Search for viable solutions while minimizing
risks
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Current Outlook
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Global outlook uncertain with markets highly
volatile
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US slowdown vs. strong emerging market growth
Sub prime loans as the trigger
Commodity boom due to supply/demand
imbalance
Nigeria largely insulated but still vulnerable
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Investment Climate (Nigeria)
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Good, bad and ugly – mixed scene
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Positive
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Macro economic management
Major reforms including pensions
Opening the playing field – such as
telecommunications
Financial sector consolidation
Heightened foreign interest
Focus on rule of law
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Investment Climate
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Good, bad and ugly – mixed scene
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Mixed
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Teleguided privatization followed by several
reversals
Significant infrastructure investment with mixed
results
Limited attempts to improve investment climate and
ease of doing business in Nigeria
Tendency towards – ready/fire/aim
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Investment Climate
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Good, bad and ugly – mixed scene
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Negative
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Niger Delta
Power and infrastructure shortfalls
Political transition delays
Protectionist mindset
Excess margin lending for quoted stocks
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Pension Reform Evolution
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Very positive results to date but still in early
stages
Compliance still low – less than 25% of
quoted companies registered
Pension funds are +/-1% of GDP with
potential to grow rapidly (25% by 2020?)
Conservative and highly professional
regulation which will need to liberalize over
time
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Pension Reform Evolution
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Investment guidelines are narrowly defined
and this lack of diversification has a double
barreled effect –
 Reduced opportunities for returns
 Increased market volatility risk
In recognition of this “fact of life”, PENCOM
has sponsored this Alternative Assets
Seminar
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Pension Reform Evolution
Let’s dream about what could be
Then – be realistic about risks and what
could go wrong
Objectives should be three fold
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Optimum risk/return system
Pension system evolving to meet national needs
Avoiding mines in the future minefield
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Future Potential
Growth from +/-1% of GDP to 20-25% by
2015-2020
All of quoted companies registered and
broad coverage at all levels of government
and SMEs
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From +/-3m covered to 10+m
N1.0 trillion to N5.0-10.0 trillion pension
funds
Increased coverage to include more of
population provided investment results build
widespread confidence
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Managing Risk
What can go wrong?
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Return to “muddling through” economic policies
Collapse of eligible markets with major impact on
public confidence
Low investment returns with high fees and
expenses
Abuse of the system
Populist misguided reform
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Objectives
1. Optimum Risk/Return System
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Investment guidelines that enhance returns
and diversify risks
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Investment vehicles which expand
alternatives for sound investments
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Enabling environment for –
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Investment climate
Expanding capital markets
Rule of law
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Objectives
2. Pension System Evolving to Meet
National Needs
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Progressive investment guidelines coupled
with prudent regulation
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Capacity building and depth of experience
within industry players
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Expansion of coverage to meet national
needs
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Objectives
3. Avoiding Mines in the Future Minefield
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Learning from global regulatory experience
(particularly Chilean type systems)
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Investment practices utilizing global lessons
learnt
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Sound diversification to cushion potential
market failures
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The Way Forward
Proactive approach to assure successful
end results –
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Public/private partnership and continuous
dialogue
Linkage to relevant global experiences
Development of enabling environment
Continuous evolution of investment guidelines in
tandem with proven investment alternatives
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The Way Forward
Public/Private Partnership
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Periodic workshops and an annual “pension
summit”
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Review progress
Upgrade skills and share experiences
Raise issues
Define and support solutions
Build public confidence and widespread support
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The Way Forward
Linkage to Relevant Global Experiences
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External courses and secondments
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Learning from global players
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Successes
Failures
Lessons learnt
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The Way Forward
Enabling Environment
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Improved investment climate
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Improved infrastructure
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Upgraded Rule of Law
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Expanded Capital Markets
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Specific reforms
Taxation
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Pass through vehicle
REITs
???
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The Way Forward
Investment Guidelines
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Systematic development of alternative
investment vehicles
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Competence
Governance
Proven track records
Evolving Investment Guidelines in anticipation
of sound investment requirements
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Conclusions
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Nigerian pension system should evolve
towards best global practices
Public Private Partnership should be nurtured
to drive the evolutionary process
Risk minimization and sound investment
results must both be given priority in building
public trust.
Long term needs for all Nigerians should be
anticipated proactively
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