Why PenCom wants Pension funds to embrace alternative aassets, diversify beyond bonds

By allcitynews.ng

When the  the leadership of National Pension Commission (PenCom) called on  stakeholders to embrace alternative investment for pension Administrators, it was a reminder of the word of famous philosopher, Ben Graham (1894 to 1976), that diversification stands as the best secured way to checkmate future loss.

The call became imperative based on habits of some people’s investments which can be be liken to putting their eggs into one basket.

Thus PenCom charged on Pension Fund Administrators (PFAs) to diversify their investment portfolios by increasing allocations to alternative assets such as infrastructure and private equity.

This was the central message at a sensitization workshop held on Thursday, June 26, 2025, for Chairpersons of Board Investment Strategy and Risk Management Committees of PFAs in Abuja.

Speaking at the event, PenCom emphasized that the current overconcentration of pension assets in fixed income instruments—especially Federal Government Securities, which account for 62% of the N24.11 trillion in total pension assets as of May 30, 2025—is limiting the potential of pension funds to generate higher long-term returns.

“Today, over 80% of pension fund assets are invested in fixed income, while only about three per cent are in alternatives such as private equity and infrastructure.

“This imbalance must be addressed if we are to optimize returns and build a resilient pension system.”

The workshop, organized in partnership with FSD Africa, aimed to equip key investment decision-makers within PFAs with practical knowledge of how alternative assets can help mitigate portfolio concentration risk and improve risk-adjusted returns.

PenCom warned that rising inflation, increasing volatility, and declining purchasing power of Retirement Savings Account (RSA) holders require pension funds to rethink their strategies. “Relying solely on traditional asset classes is no longer sufficient,” the Commission stated. “Alternative investments are essential in aligning long-term pension liabilities with sustainable returns.”

The Commission also reminded committee chairpersons of their fiduciary responsibility to act in the best interest of contributors. This includes resisting undue influence, conducting rigorous risk assessments, and ensuring compliance with regulatory guidelines.

“Fiduciary duty demands independence of thought, transparency, and continuous evaluation of whether your PFA’s investment strategy is prudent and aligned with the scheme’s long-term goals,” PenCom said.

In closing, PenCom expressed optimism that the workshop would serve as a catalyst for innovation and reform in the pension investment landscape. “We hope this engagement deepens your understanding, fosters idea-sharing, and shapes a more forward-looking investment strategy for Nigeria’s pension industry.”

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