PFAs tap private equities, infrastructure funds for high yields

Pension Fund Administrators (PFAs) are turning to private equities and infrastructure funds in pursuit of high-yield gains.

This is driven by the potential high returns of these assets and policy incentives, even as they come with high risks, according to analysts at Pension Fund Operators Association of Nigeria (PenOp).

Analysis of assets allocation by PFAs over a one-year period shows that private equities recorded the highest increase, growing by 106.35 percent, from N71.66 billion in 2023 to N147.86 billion in 20234.

“This suggests a rising interest in alternative investments, PenOp analysts said.

According to them, alternative investments usually pose a higher risk than traditional asset classes but provide the potential upside of beating inflation in a high-yield environment.

Infrastructure funds were the second largest growth assets, recording 49.49 percent increase, rising from N143.37 billion in 2023 to N214.33 billion at the end of 2024.

“This reflects an increasing emphasis on infrastructure investment, possibly driven by policy incentives encouraging pension fund participation in long-term development projects.”

Domestic and foreign ordinary shares grew by 41.8 percent, increasing from N1.77 trillion to N2.51 trillion, with the Nigerian All Share Index recording another impressive year. Money market instruments expanded by 32.9 percent, from N1.67 trillion to N2.22 trillion, with yields on Nigerian treasury bills reaching their highest in years as the apex bank tried to rein in inflation and attract investors.

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FGN securities, while still the largest asset class in absolute terms, grew by a more moderate 18.37 percent, increasing from N11.92 trillion to N14.11 trillion.

“The relatively slower growth indicates that while government bonds remain a significant component of investment portfolios, there is a gradual shift toward equities and alternative assets.”

Similarly, corporate debt securities grew by 17.8 percent, from N1.91 trillion to N2.25 trillion.

By leveraging private equities and infrastructure funds, PFAs are positioning themselves to secure robust returns, capitalising on the potential of alternative assets to outperform traditional options, said Chika Onwunali of Premium Debate.

He noted that these alternative strategies are gaining traction as a means to generate superior growth in an uncertain market.

Aguda Oguche, chief executive officer, PenOp, commenting on asset growth with Closed Pension Fund Administrators (CPFAs), said domestic and foreign ordinary shares grew by 71.6 percent from 2022 to 2023, and 34.7 percent from 2023 to 2024.

He said this growth has been primarily driven by the devaluation of the naira, as CPFAs hold a significant amount of foreign equities listed in hard currency.

FGN securities increased by 21.2 percent from 2022 to 2023 and 14.1 percent from 2023 to 2024, while Corporate debt securities witnessed the highest growth, with a 77.9 percent rise from 2022 to 2023 and 64.9 percent from 2023 to 2024.

At the end of December 2024, net asset value of Nigeria’s pension industry stood at N22.512 trillion, a growth of N254.53 billion from N22.258 trillion in November 2024.

In terms of enrolment, 10, 582,299 Retirement Savings Account (RSA) holders have so far registered in the Contributory Pension Scheme (CPS), according to data.