PENCOMALTERNATE ASSETS SEMINAR

SETTING THE TONE

March 5, 2008

By: Dick Kramer

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Outline

Perspective and Purpose Current Situation

Economic Outlook Investment Climate Pension Reform Evaluation

Future Potential and Objectives The Way Forward

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Perspective and Purpose Buoyant Nigerian economy against backdrop of

global slowdown Economic vulnerability due to-

Dependence on petroleum Major investment barriers Potential loss of momentum Risk of market bubble/meltdown

High potential for pension reform success But

Early in learning curve Largely undiversified Vulnerable to market volatility

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Today’s Focus

Based on global experiences, explore asset diversification Real estate Infrastructure Bond markets Private equity Global investments

Search for viable solutions while minimizing risks

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Current Outlook

Global outlook uncertain with markets highly volatile 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)

Good, bad and ugly – mixed scene Positive

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

Good, bad and ugly – mixed scene Mixed

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

Good, bad and ugly – mixed scene Negative

Niger Delta Power and infrastructure shortfalls Political transition delays Protectionist mindset Excess margin lending for quoted stocks

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Pension Reform Evolution

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

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

1. Optimum risk/return system2. Pension system evolving to meet national needs3. 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

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?

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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Objectives1. Optimum Risk/Return System Investment guidelines that enhance returns

and diversify risks Investment vehicles which expand

alternatives for sound investments Enabling environment for –

Investment climate Expanding capital markets Rule of law

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Objectives2. Pension System Evolving to Meet

National Needs Progressive investment guidelines coupled

with prudent regulation Capacity building and depth of experience

within industry players Expansion of coverage to meet national

needs

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Objectives

3. Avoiding Mines in the Future Minefield Learning from global regulatory experience

(particularly Chilean type systems) Investment practices utilizing global lessons

learnt Sound diversification to cushion potential

market failures

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The Way Forward Proactive approach to assure successful

end results – 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 Periodic workshops and an annual “pension

summit” 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 External courses and secondments Learning from global players

Successes Failures Lessons learnt

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The Way Forward

Enabling Environment Improved investment climate Improved infrastructure Upgraded Rule of Law Expanded Capital Markets Specific reforms

Taxation Pass through vehicle REITs

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The Way Forward

Investment Guidelines Systematic development of alternative

investment vehicles Competence Governance Proven track records

Evolving Investment Guidelines in anticipation of sound investment requirements

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Conclusions 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