Sovereign Concentration and Pension Portfolio Resilience: Infrastructure Diversification Under Liquidity Constraints in Ghana

Abstract

Ghanaian pension funds hold over 70 percent of their assets in government securities, a

concentration that delivered stable returns in normal times but exposed retirement savings to

catastrophic losses during the 2022–23 Domestic Debt Exchange Programme. This paper

develops a stochastic portfolio simulation framework to evaluate the transition from sovereign-

concentrated to diversified pension portfolios, incorporating infrastructure as a distinct asset

class. We introduce the Sovereign-Adjusted Resilience Index (SARI), a composite metric

spanning real returns, downside protection, tail-risk, sovereign independence, and crisis

robustness, and apply it to six diversification strategies ranging from the status quo (85 percent

government bonds) to a real-asset-heavy allocation (50 percent infrastructure).

The paper reveals three main findings. First, pension diversification simultaneously improves

outcomes across every measured dimension: the SARI rises from 0 (status quo) to 100

(maximum resilience), the probability of real capital loss falls from 14.9 percent to zero, and

DDEP-type losses decline from 24.9 percent to 7.2 percent. Second, the relationship between

sovereign exposure and resilience is non-linear, with fragility collapsing once sovereign

concentration falls below approximately 70 percent, a threshold with direct prudential

implications. Third, when liquidity and infrastructure quality constraints are introduced, the

practical optimum shifts from the theoretical maximum (50 percent infrastructure) to a feasible

range of 25–35 percent, with high-quality private infrastructure delivering substantially greater

resilience than sovereign-linked projects.

The paper contributes to a sovereign-aware pension resilience framework applicable to

emerging economies where fiscal dominance concentrates retirement savings in government

debt. For Ghanaian policy, it provides quantitative support for amending the NPRA Investment

Guidelines to accommodate infrastructure as a distinct asset class, with a phased

implementation pathway starting at 5 percent and rising to a constrained optimum of 25–35

percent over a decade.