Pension industry’s net asset value (NAV) increased by 4.14 percent (N814.92 billion) to N20.48 trillion in the second quarter of 2024 from N19.67 trillion reported in the first quarter. However, the growth was lower than N1.31 trillion (7.16 percent) recorded in the first quarter (Q1) of 2024, according to data by the National Pension Commission (PenCom).
The pension industry’s net asset value (NAV) took a slight cut at the end of second quarter (Q2) 2024 due to depreciation in prices of equities. The diminution, PenCom said, was mainly due to investment returns, particularly depreciation in the prices of equities during the period.
“The decrease in the value of investments in domestic quoted equities was primarily due to the depreciation in the prices of some stocks during the reporting period, as the Nigerian Stock Exchange Pension Index (NSE-PI) depreciated by 2.26 percent in Q2:2024 relative to a significant appreciation of 38.50 percent in Q1:2024,” PenCom said.
Pension Fund Administrators (PFAs) bought Nigerian stocks worth N550 billion in the first three months of 2024, taking their total exposure to the equities market to N2.32 trillion as at the end of March. This was an uptick of 31 percent (N550 billion) in equity investments from N1.77 trillion in December 2023.
Analysts at Pension Fund Operators Association of Nigeria (PenOp) said the trend reflects a growing confidence in the equity market among pension funds.
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The N550 billion outlay helped drive the stock market to a year-to-date return of 39.84 percent in the first quarter of 2024, the second-best return in Africa.
That market thrived despite aggressive rate hikes by the Central Bank of Nigeria (CBN) this year. The CBN has, in 2024, raised the benchmark interest rate by a combined 600 basis points to 24.75 percent.
Higher interest rates mean increased interest expense for companies, which then negatively impacts the stock market.
Oguche Agudah, chief executive officer, PenOp, responding to Business Day enquiries on factors driving growth of pension assets since December 2023, said, “Domestic ordinary shares, foreign ordinary shares, government debt securities, corporate debt and cash held by pension funds accounted for almost 93 percent of this growth,” Agudah said.
Agudah however noted specifically that the value of ordinary shares held by pension funds surged by over N360 billion between December and January. This was driven by a bull run in the NGX as the All-Share Index reached another milestone.
“Further highlighting this is the increase in allocation to domestic listed equities by the pension funds from 8.56 percent to 9.89 percent of their total assets.”
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He said foreign ordinary shares also played a role in the surge. The devaluation of the naira meant the revaluation of foreign assets upwards, leading to a growth in value of foreign assets held by closed pension fund administrators (CPFAs) by over N118 billion.
Despite the performance of listed equities (both foreign and domestic), fixed income securities also played a significant part in this surge.
“It has taken a long time, and almost four successive years of positive equity returns from the Nigerian Exchange Limited (NGX), but it appears that Nigeria’s enormous pension funds are warming to equities again,” analysts at Coronation had said in its Daily Weekly Update late last year.
“So, either Nigerian pension funds are very good stock pickers, or they are net purchasers of equities. The big rise in their equity position was likely a combination of net purchases of up to N200.0 billion, we think – and reasonable stock selection.”
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