This article is written by Cindy Valentine (partner) and Matthew Wild (associate).
As of March 2015, sovereign wealth funds (“SWFs”) had over US$6.31trillion of assets under management (2015 Preqin Sovereign Wealth Fund Review,) and have long been a source of funds for fund managers. This figure includes an increasing number of African SWFs. African oil producing nations are leading the trend in an attempt to hedge against commodity cycles.
The Nigerian Sovereign Investment Authority (“NSIA”) is one such SWF, established in 2012 with seed capital of US$1billion.
NSIA operates through three funds which have distinct objectives:
1. Stabilisation Fund (“SF”)
SF received 20% of the US$1 billion seed capital. The purpose of the SF is to act as a buffer against short-term macro-economic instability, given Nigeria’s reliance on oil revenues and exposure to the commodity cycles. SF has a low return target with asset allocation split between hedge assets (25%) and growth assets (75%).
Three external fund managers currently manage the growth assets allocation, which is restricted to investment grade corporate bonds.
2. Future Generations Fund (“FGF”)
FGF received 40% of the US$1 billion seed capital. Its objectives are long-term (20+ years) and NSIA has a greater degree of investment flexibility which is based on a returns target. Each year NSIA develops a rolling five year investment plan for the year end 31 December 2014.
Under the current plan, 25% of FGF’s assets have been allocated to Private Equity, Venture Capital and value-added Real Estate, of which 75.9% was invested at YE14.
3. Nigeria Infrastructure Fund (“NIF”)
NIF received 40% of the US$1billion seed capital. Again, each year NSIA develops a rolling five year investment plan for NIF. NIF’s objective is to develop Nigerian infrastructure.
The current plan identifies five sector focuses: Power, Healthcare, Agriculture, Real Estate and Motorways.
Although investments are limited in geography, NIF has already paired with foreign partners. For example, the Abuja Centenary City development is a joint venture with Eagle Hills (an Abu Dhabi investment company).
Opportunities for foreign investment
To date, most of NSIA’s investments are in Nigeria. However, there are no restrictions on SF and FGF investing abroad. As NSIA matures we expect that foreign investments will constitute an increasing portion of NSIA’s portfolio and accordingly that there will be an increasing number of opportunities to partner with NSIA in the future.