A 2021 survey by the African Private Equity and Venture Capital Association (AVCA) and the Pension Fund Operators Association of Nigeria (PenOp) reveals strong interest among Nigerian pension fund managers in private equity (PE), though only 0.29% of their N13 trillion assets under management, or N36.7 billion, is currently allocated to this asset class as of September 2021.
Growing Appetite for Private Equity
The survey indicates that 75% of participating pension fund managers plan to either accelerate or maintain their current pace of capital commitments to African private equity over the next five years. This enthusiasm is driven by a desire for portfolio diversification and enhanced performance, despite the low current allocation compared to allowable limits.
Challenges Limiting Investment
Several obstacles hinder greater pension fund investment in private equity, including:
-
Weak Exit Climate: Unpredictable exit windows and limited exit opportunities deter investment.
-
Lack of Market Information: Insufficient data on the private equity market limits informed decision-making.
-
Transparency Issues: A lack of regular, industry-specific, and transparent reporting poses a barrier to increased allocations.
These challenges contribute to the conservative approach of pension funds, with only 0.29% of their N13 trillion asset base invested in private equity.
Key Survey Insights
The AVCA and PenOp report provides a detailed look at the Nigerian pension fund landscape:
-
Asset Management Scale: Approximately 63% of surveyed pension fund managers manage less than US$999 million in assets, with 44% managing between US$500 million and US$999 million, and 31% managing between US$1 billion and US$4.9 billion.
-
Investment Exposure: A significant 88% of respondents have exposure to private equity and infrastructure funds, and 75% to real estate funds. However, 94% lack exposure to Africa-focused venture capital funds, reflecting a cautious stance toward this asset class.
-
Capital Commitments: Four in five respondents have capital commitments to private equity in Nigeria, with 69% committing between US$1 million and US$20 million, while larger investments (US$21 million and above) are concentrated in national and regional markets.
Untapped Potential in a Growing Market
Despite regulatory expansions since December 2010 allowing pension funds to invest in private equity and venture capital, none of the surveyed managers have invested in Africa-focused venture capital funds. However, 81% are invested in private equity vehicles in Nigeria and across the continent, indicating a preference for established markets. With pension fund assets reaching N13 trillion by September 2021, there is significant untapped potential for domestic capital to support indigenous fund managers and drive economic growth.
Bridging the Gap
The report underscores the need for open dialogue to address institutional investors’ concerns and promote private equity as a viable asset class. AVCA and PenOp aim to bridge the knowledge gap by providing research to enhance understanding of Nigeria’s private equity landscape, encouraging greater pension fund participation to bolster local investment and economic impact.
