Pension Fund Administrators (PFAs) controlling in excess of N15 trillion in assets under management (AUM) have reduced their allocations to Nigeria’s equities in search for less risky investments.
According to industry analysts, investment of pension funds continues to shift with more allocation going to federal government bonds and securities as against equities and other asset classes, underscoring challenges and volatility in the investment market.
Muyiwa Oni, regional head of research at Standard Bank Group, confirming the shift in market trend, said PFAs’ allocation to equities was as high as 14.6 percent in December 2013 but fell to 6 percent at the end of 2022, as operators focused on their search for less risky investments.
Akinbola Akintola, lead, research and investment at Pension Fund Operators Association of Nigeria, said pension funds have seen reduced engagement with equities, from 7.73 percent in 2021 to 6.79 percent in 2022, when stock return on investment was 19.98 percent but was negative in six months.
Oni said the Nigerian Exchange Limited (NGX) has over the last 10 years performed relatively well in domestic value terms, returning 200 percent.
According to him, its performance over the last year has been driven by brewers and the oil and gas sector, and the NGX is also having a good 2023, growing 4.4 percent this year, and earnings will be driven by banks, taking advantage of the high interest environment.
“We propose an overweight recommendation for cements and banks. We expect elevated prices to drive earnings for cement names. We expect the higher interest rate environment to drive higher net interest margins and earnings for banks as yields on government securities and customer loans increase,” he said.
Aisha Dahir-Umar, director general of the National Pension Commission, said despite the overwhelming headwinds in the global economic climate and the country’s challenging macroeconomic environment, the pension fund assets under management increased from N14.42 trillion as of September 30, 2022 to N14.99 trillion at the end of the year.
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“This laudable performance in the growth of the AUM points to the fact that the pension industry will continue to deliver value and benefit to its stakeholders and the nation’s economy,” she said.
According to her, during the fourth quarter of 2022, the commission stepped up its efforts to ensure sustainable investment by pension funds in alternative asset classes and structured infrastructure projects that meet the strict requirements of the Pension Fund Investments Regulation.
“We continued our efforts to ensure further diversification of investments in pension fund portfolio assets. While rising inflation continues to challenge the Nigerian economy, it should be noted that efforts are being made to ensure average annual pension fund returns for RSA and legacy funds exceed headline inflation,” she said.
Dahir-Umar said the significant achievement in the Nigerian pension industry would not have been possible without the right people, strategy, culture and governance structure to support delivering consistent and sustainable value to all stakeholders.
“We reiterate our unwavering commitment to meeting the needs of our stakeholders, providing best practice in pension regulation and supervision in Nigeria,” she said.
