Pension Fund Administrators (PFAs) are keenly watching their exposure to equities, optimising returns and managing risks in response to market volatilities.
Over the past five months, between January to May 2024, there has been a noticeable trend where these funds have strategically increased or decreased their equity investments in line with market fluctuations.
As the NGX All-Share Index (ASI) experienced variations in market capitalisation, pension funds correspondingly modified their investment levels, according to experts in the industry.
This dynamic adjustment reflects a responsive strategy aimed at optimising returns and managing risks in the equities market, says Oguche Agudah, chief executive officer, Pension Fund Operators Association of Nigeria (PenOp).
Data compiled by PenOp shows that pension fund investment in equities from January 2024 moved from N85.5 billion to N88.9 billion in February, dropped again to N84.5 billion in March and rose again to N89.1 billion in April, and at the end of May it rose again to N93.2 billion.
This movement corresponded to the movement of NGX All share index during the same period. From N101.2 trillion in January, it dropped to N99.9 trillion in February, moving up again to N104.6 trillion in March, down again to N98.2 trillion in April and up marginally again to N99.3 trillion in the month of May.
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Agudah said, overall, this trend underscores the importance of a proactive approach in aligning investment strategies with market performance to ensure sustainable growth and stability in the financial sector.
The nation’s pension fund assets rose to N20.2 trillion at the end of May 2024, from N19.75 trillion in April, indicating N470 billion increase
The growth in the pension industry has shown a notable upward trend over the past month, with key investment categories having experienced significant increases
Akinbola Akintola, head of Research and Investment at PenOp said domestic and foreign ordinary shares jumped by 4.3 percent, rising from N2.07 trillion in April to N2.16 trillion in May.
“Investments in Nigerian government bonds saw a healthy 3.1 percent increase, climbing from N12.4 trillion in April to N12.79 trillion in May.”
Akintola said corporate debt investments also rose by 3.8 percent, going from N2.11 trillion in April to N2.19 trillion in May.
“Investments in mutual funds grew by a noteworthy 11.9 percent, increasing from N85.19 billion in April to N95.28 billion in May.”
He said these figures reflect robust growth across various asset classes, underscoring the positive momentum within the pension industry.
Analysts at FBN Quest said recent update from the PenCom shows that Nigeria’s pension assets resumed its upward trajectory after a brief moderation in April.
Based on the Commission’s report, total assets under management (AUM) of the regulated pension industry increased by N440 billion m/m or (+2 percent m/m) to N20.2 trillion as at end-May ’24. On a y/y basis, pension’s AUM growth was more pronounced, rising by +26 percent y/y, slightly outpacing the growth rate of 25 percent registered in the previous month, the analysts said.
“All major asset categories contributed to the higher m/m growth in AUM value in May, except for money market securities, which experienced a mild decline of -1 percent m/m to N1.9 trillion.”
They said FGN Bonds, which constitute a significant proportion (94 percent) of FGN securities and the overall pension funds (60 percent) AUM, was the primary driver behind the m/m increase.
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“The value of FGN bonds rose by +3 percent m/m or N371 billion to about N12.1 trillion in May. On a y/y basis, it increased significantly by c.21 percent y/y.”
“The sizable allocation of pension fund holdings in government bonds can be attributed to the higher yield environment resulting from the unprecedented MPR hike.”
Another contributory factor is the higher supply of FGN paper by the Debt Management Office DMO in order to fund its 2024 budget deficit of about N9.2 trillion.
Domestic equities, which accounted for 9 percent of the total pension’s AUM, increased by 4 percent to N1.9 trillion in May ’24.
The PenCom data shows roughly 10.4 million scheme members, implying an average portfolio of 1.95 million per RSA account holder.
Looking ahead, we expect yields to remain elevated in the fixed-income market due to a combination of factors.
“First is the prevailing elevated interest rate environment due to the MPC’s tight monetary stance.
Secondly, is the government’s preference to borrow from the domestic market due to the tight international credit market conditions and the government’s underperforming revenue relative to its large expenditure bill.
Consequently, we expect the robust PFA’s allocation to government securities to persist, the analyst said.
