…As T-bills, private equities provideIG good returns
Since the introduction of the Contributory Pension Scheme (CPS) in 2004, pension fund assets (PFAs) in Nigeria have grown their assets to N22.3 trillion.
Though 2024 was a challenging year for the industry due to high inflation and naira depreciation, Nigeria’s pension funds recorded a 21.2 percent return between January and November 2024.
This however translated to a double-digit real negative return when adjusted for inflation.
But PFAs reaped big from several sources, especially foreign money markets, treasury bills and private equities.
Foreign money market instruments – 202%
Between January and November 2024, investments by Nigerian pension funds in foreign money market instruments surged by 202 percent. These holdings grew from N48.9 billion at the beginning of the year to N147.8 billion by the end of October.
The majority of investments in foreign money market instruments were driven by closed PFAs (CPFAs) which hold approximately ₦134.3 billion in these assets.
A CPFA is an employer managing its existing pension scheme before the enactment of the Pension Reform Act 2004, according to the National Pension Commission (PenCom).
Nestle Nigeria Trust CPFA, Progress Trust CPFA, Shell Nigeria CPFA and Total Energies EP CPFA are some examples of these CPFAs investing in foreign instruments.
Treasury Bills – 168%
Treasury bills (T-bills) emerged as the second-highest-yielding asset class in pension fund investments for 2024. Between January and November 2024, treasury bills held by pension fund administrators increased from N214.5 billion to N575.2 billion.
The existing schemes held N170.6 billion worth of treasury bills, with Fund II schemes totalling N192.7 billion. Fund II pension funds are the contributory funds for people who are 49 years and younger. During the year, closed PFAs reduced their holdings of treasury bills from N18.8 billion at the start of the year to N8.6 billion at the end of November.
Cash & Other Assets – 146%
PFAs increased their cash holdings in 2024 from N220 billion at the start of the year to N541 billion at the end of November 2024. Existing schemes and Fund II were also the largest holders of cash and other assets which totalled N227.7 billion and N137.1 billion respectively.
Read also: PFAs raise stake in real estate by N267bn in five years
Private Equities – 78%
Private equities held by pension fund administrators grew by 78 percent, from N71.7 billion to N127.8 billion within the period under review. This growth indicates a strategic shift towards higher-risk, higher-reward investments, likely driven by the need to offset inflationary pressures and achieve stronger long-term returns. The allocation to private equity grew from 0.39 percent at the start of 2024, to 0.57 percent at the end of November 2024. Under Nigeria’s pension regulations, a maximum of five percent of pension fund assets is permitted to be allocated to private equities.
Sukuk bonds – 71%
The returns on corporate bonds increased by 70.8 percent, from N128.8 billion at the start of the year to N220 billion at the end of November 2024.
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