Pension funds have seen an increasing appetite for equities, reflecting increased market confidence by Pension Fund Administrators (PFAs).
Data from the National Pension Commission (PenCom), shows there was a significant uptick of 2.82 per cent in investments in ordinary shares between December 2023 to March 2024.
Analysts at Pension Fund Operators Association of Nigeria (PenOp) interpreting the report said, this increase puts total pension investment in equities to 11.79 per cent, equal to N2.32 trillion in March 2024 from 8.97 per cent or N1.77 trillion in December 2023.
This is as the total assets under management (AUM) of all the PFAs grew to N19.67 trillion at the end of March 2024 from N18.36 trillion in December 2023.
The PenOp analysts said this reflects a growing confidence in the equity market among pension funds.
The pension body emphasising the role of pension in investment said pension funds play a crucial role in the investment landscape, often being the largest off-takers for various financial instruments, including government securities.
They noted that in the first quarter of 2024, their involvement increased notably, with a rise of 1.7 per cent in investments in FGN securities from N11.92 trillion to N12.2 trillion.
According to the Association, cash and other assets witnessed a modest increase of 0.9 per cent in the first quarter of 2024, whereas corporate debt securities rose from N1.91trillion to N2.07 trillion, underscoring pension funds’ growing interest in corporate debt instruments as part of their investment strategy.
Oguche Agudah, chief executive officer, PenOp responding to Business Day enquiries on factors driving growth of pension assets since December 2023 said several factors contributed to this growth. “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.”
Investment rises to N2.32trn in March
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.”
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 the value of foreign assets held by 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. “Both federal government securities and corporate debt securities increased by N219 billion and N291 billion respectively. This growth in asset value is a result of a push by the Nigerian government to mop up liquidity, offering high yields on government securities as it seeks to combat inflation.”
“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.
The Coronation report said that in contrast with industry data from 2022, the evidence since 2023 suggests that pension funds are enthusiastic buyers of equities.
“From the beginning of 2023 to the end of July, the total AUM of Nigeria’s pension funds rose by 13.8 per cent to N17.1 trillion. The value of their equity holdings rose by 47.5 per cent to N1.3 trillion over the same period. The 25.5 per cent rise in the NGX All-Share Index over that period does not account for that increase, according to them.
“So, either Nigerian pension funds are very good stock pickers, or they were 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.”
This took the proportion of equities in the AUM of pension funds from 6.1 per cent to 7.8 per cent at the end of July 2023
“If we look at the four months from the end of March to the end of July 2023, the total equity holdings of pension funds rose from N1.04 trillion to N1.34 trillion, a rise of 28.4 percent compared with a rise in the total AUM of pension funds of 9.5 percent,” the analysts said.
Meanwhile, global pension assets returned to growth in 2023, rising in aggregate by 11 per cent to reach $55.7 trillion, due in part to stronger capital market performance throughout the year, according to Thinking Ahead Institute’s latest Global Pension Assets Study.
This compares to $50.1 trillion at the end of 2022, when the same study by the Thinking Ahead Institute (TAI) had previously measured the largest annual fall since the global financial crisis, interrupting a decade of previous uninterrupted growth.
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