The Nigerian government established its first recognized sovereign wealth fund by ratifying the Nigeria Sovereign Investment Authority (NSIA) Act in May 2011. That year, the government funded NSIA with $1 billion drawn from the country’s $6 billion Excess Crude Account (ECA), a repository of surplus oil and gas revenue overseen by the Central Bank of Nigeria. The government intended to replace ECA with NSIA but has not yet done so.
The creation of NSIA has proven controversial. Nigeria’s 36 state governors have repeatedly questioned the fund’s constitutionality, arguing that the federal government must share oil revenue with state and local authorities instead of saving it in a central pot. The governors challenged the NSIA Act in the Supreme Court of Nigeria in 2012. The court ruled that the dispute was political rather than legal, and that the parties should reach a private settlement. But subsequent talks between the state governors and the federal government collapsed in late 2013, and the Supreme Court will now reconsider the legality of the fund at a hearing in September 2014.
Despite the uncertainty created by this ongoing dispute, NSIA began operating in mid-2013. The organization oversees three separate funds: the Future Generations Fund, the Nigeria Infrastructure Fund and the Stabilization Fund. Each serves a different national purpose and is subject to certain restrictions. NSIA has four objectives that the government expects it to achieve over the medium to long term:
- Build a savings base for the Nigerian people;
- Enhance the development of Nigerian infrastructure;
- Provide stabilization in times of economic stress;
- Stimulate economic diversification by improving the regulatory environment and attracting foreign investors.
The NSIA Act tasks the sovereign wealth fund’s CIO with establishing a separate portfolio for each fund and creating individualized portfolio strategies. Generally, NSIA must reinvest its funds’ profits in perpetuity; the Stabilization Fund is the only exception. NSIA can invest in traditional and alternative asset classes including international stocks and bonds, hedge funds, infrastructure assets, private equity funds, and real estate.
NSIA made a slow start, returning a mere 0.3 percent during the 2013 calendar year. The fund performed a little better in the first quarter of 2014, growing by 0.6 percent, or $7 million, as it began realizing returns on capital allocated in late 2013. NSIA expects each of its standalone funds to be invested in full by the end of 2014.NSIA has two tiers of governance: a governing council and a board of directors. The council oversees NSIA’s board, providing guidance as the fund seeks to achieve its goals. The council comprises 49 members including the president or vice president, all 36 state governors, government ministers from various agencies and representatives from the private sector. The nine-member board oversees NSIA’s performance, provides general supervision and amends its investment policies when required. It consists of a nonexecutive chairman, NSIA’s managing director and chief executive, two of the fund’s executive directors, and five nonexecutive directors with varying degrees of investment and legal knowledge.
In May 2014, NSIA became a member of the International Forum of Sovereign Wealth Funds (IFSWF), an influential association of the largest state-owned asset managers that meets to exchange views on investing challenges and other issues of common interest. NSIA seeks to adhere to the IFSWF’s Generally Accepted Principles and Practices, known informally as the Santiago Principles, which define best practice and standards of accountability for state investors.