PFAs rethink asset portfolios to beat market uncertainties

Pension Fund Administrators (PFAs) are rethinking their asset portfolios to beat market uncertainties.

With the nation’s high interest rate and galloping inflation, which continue to impact financial markets, PFAs say they are reassessing their investment strategies to ensure stability and growth for retirees.

According to analysts at Pension Fund Operators Association of Nigeria (PenOp), strategic realignment is crucial in adapting to the evolving market landscape while sustaining performance over time.

They said the Nigerian pension industry demonstrated notable growth across key asset classes from October to November 2024, reflecting strategic portfolio adjustments and market dynamics.

Data from the National Pension Commission (PenCom) analysed by PenOp show that allocation to domestic ordinary shares rose from N2.11 trillion in October to N2.12 trillion in November, indicating a 0.4 percent increase.

The slight increase in allocation to domestic equities within the one-month period highlights stability in equity investments, suggesting cautious optimism amid prevailing economic conditions, the analysts said.

The federal government securities, which have been the cornerstone of pension fund portfolios, experienced a growth of 1.92 percent, from N13.57 trillion to N13.83 trillion in the one month. The PFAs said the increase underscores their continued appeal to low-risk profile and dependable returns.

A modest growth of 0.91 percent was seen in money market instruments, from N2.2 trillion to N2.2 trillion in the one-month period, which they said signifies the ongoing reliance on liquid, short-term instruments to maintain portfolio liquidity while balancing risk.

Read also: PFAs’ N22.3trn assets reap big from foreign money market

“There is a 22 percent surge in Real Estate Investment Trusts (REITs), and this reflects a growing preference for diversifying portfolios with real estate-backed assets, likely driven by renewed confidence in the sector,” PenOp said.

An 8.36 percent increase in cash and other assets category, which moved from N499.33 billion in October to N541.06 billion in November 2024, points to strategic liquidity management and repositioning within the industry, enabling greater flexibility in responding to market opportunities, the analysts said.

Multi-Fund Structure influences the asset allocation of pension funds. It is a structure that divides the Retirement Savings Account (RSA) and Retiree fund into six funds known as I, II, III, IV, V and VI. The Fund recognises different demographic (age) profiles and risk appetites of registered contributors, according to experts at TrustFund Pensions.

For example, Fund 1, which is accessible to contributors aged 49 years and below, and is particularly suitable for contributors with a longer duration of work life.

Oluleye Ademola, head, Investment at Veritas Glanvills Pensions Limited said, Fund 1 can invest up to 75 percent of its assets in variable income instruments, which can earn returns above the inflation rate in the long term.

Data from PenCom and compiled by MoneyCouncellors show that Fund I accumulated N241.75 billion out of the N22 trillion total pension assets in 2024.

Fund 11, according to Ademola, is the default fund for those that are 49 years and below as at their last birthdays.

Contributors are onboarded by default into this fund type unless they elect otherwise. Contributors may elect to move to other funds or are moved automatically upon the attainment of 50 years of age. This fund accumulated N9.6 trillion of pension assets in 2024, according to data compiled by Money Councillors.

Fund 111 is a pre-retirement fund with a significantly reduced risk exposure to variable income instruments. This fund is for active contributors who are above 50 years. However, contributors in the fund can elect to move to Fund II but are not allowed to move to Fund I. This Fund in the period under review got N6.53 trillion of total pension assets.

Fund IV is strictly for RSA retirees only. The fund is for those that have applied for retirement and chosen the Programmed Withdrawal option. The main objective of the retiree fund is to ensure that the fund does not diminish or lose value. In the 2024, the Fund got N2.11 trillion investment

Fund V is for self-employed persons, otherwise called the Micro Pension Plan (MPP). Contributions are flexible and may be paid daily, weekly, monthly, or as may be convenient. The regulation allows for a maximum of 40 percent to be withdrawn for contingent purposes, while 60 percent shall be for retirement savings. The fund garnered N1.08 billion in the full year of 2024.

Fund VI (Active & Retiree) is referred to as the non-interest fund and it is for contributors who desire that their pension contributions be invested in instruments that are both ethical (shariah compliant) and non- interest bearing. About N96.76 billion of total pension assets was invested here in 2024.