Pension funds raise stock investment by N588bn in one year

The pension sector injected N588.1 billion into the stock market in 2023.

Pension Fund Operators Association of Nigeria (PenOp) said pension fund administrators (PFAs) sustained their interest in stocks, after an 8.52 percent growth in the equities market at the end of the first quarter of 2023 compared to the last quarter of 2022.

In 2023, domestic investors traded equities worth N3.167 trillion, with retail investors accounting for over 35 percent (N1.12 trillion) and institutional investors traded stocks valued at N2.05 trillion.

According to the National Pension Commission (PenCom), the equity market also provides opportunities for PFAs to take strategic positions in sound but undervalued stocks for long-term benefit.

This is as total pension assets under management rose to N18.4 trillion in December 2023 from N15.27 trillion in January, with 10.19 million registered contributors 2023.

Monthly data on pension funds industry portfolio for the period ended December 31, 2023 released by PenCom shows that investment in stocks moved from N983.09 billion in January 2023 to N1.57 trillion at the end of December.

This, market analysts say, shows increasing appetite of PFAs to invest in the country’s stock market, which has rallied considerably since last year.

“From the commencement of the year until October 2023, ordinary shares witnessed a noteworthy increase of N588 billion, underscoring their robust performance, according to PenOp.

Simultaneously, Federal Government bonds exhibited substantial growth, marking an uptick of 1.94 trillion.

According to PenOp, 2023 was a good year for pension fund investments, represented by some of the asset classes in pension fund portfolios.

The association said there was a slight reduction of N19 billion in investments in the money market as of October.

It said: “This suggests a strategic reallocation of pension fund assets to other classes. Notably, investments in infrastructure experienced a positive surge, showing an increase of N17 billion during this period.

“These shifts in asset values signify a responsive and diversified investment strategy, optimising the portfolio to capitalise on varying market conditions and opportunities.”

From N983.85 billion investment in ordinary shares in January 2023 and N1.069 trillion in February, the PFAs have moved on with trillion-naira worth of stocks month-on-month closing the year at N1.571 trillion, PenCom said in its latest data.

However, Federal Government’s securities remain safe haven for the PFAs who have prioritised safety of contributors’ funds in choosing where to invest.

Investment in Federal Government securities also appreciated very substantially, moving from N9.48 trillion in January 2023 to N11.92 trillion in December.

Jerome Opadokun, an analyst with one of the PFAs, had said the stock market rally was driven by factors that may not be sustainable in the long term because FX pressure continued to rise, with inflationary trend and subsidy removal affecting spending in the economy.

He said there was a need for fund managers to change their liability structure to justify the high stock returns, noting that the industry is going through a change process and it is important to manage the process and expectations of contributors.