• Tuesday, May 28, 2024
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Pension funds bet big on equities with N550bn outlay in Q1

Pension funds bet big on equities with N550bn outlay in Q1

…as investment hits N2.32trn in March

Pension fund managers bought Nigerian stocks worth N550 billion in the first three months of 2024, taking their total exposure to the equities market to a record N2.32 trillion as at the end of March.

Data from the National Pension Commission (PenCom) shows an uptick of 31 percent (N550 billion) in equity investments to N2.32 trillion as at March 2024 from N1.77 trillion in December 2023.

The increase takes the total contribution of equities to 11.79 of the PFAs’ total portfolio in March 2024 from 8.97 percent in December 2023.

Read also: Pension fund warms up further to equities

This is as 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.

Analysts at Pension Fund Operators Association of Nigeria (PenOp) interpreting the report said the trend reflects a growing confidence in the equity market among pension funds.

The N550 billion outlay helped drive the stock market to a year to date return of 39.84 percent in the first quarter of 2024, the second best return in Africa.

That market thrived despite aggressive rate hikes by the Central Bank of Nigeria (CBN) this year. The CBN has this year raised the benchmark interest rate by a combined 600 basis points to 24.75 percent.

Higher interest rates means increased interest expense for companies which then negatively impacts the stock market but the pension funds have contributed in spurring the stock rally.

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.

Investments in FGN securities, which still accounts for more than 60 percent of total assets under management, rose 2.3 percent to N12.2 trillion in the three-month period from N11.92 trillion as at the end of 2023.

Cash and other assets witnessed a modest increase of 0.9 percent in the first quarter of 2024, whereas corporate debt securities rose from N1.91 trillion to N2.07 trillion, underscoring pension funds’ growing interest in corporate debt instruments as part of their investment strategy.

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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,” Agudah said.

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 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 as 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 percent to N17.1 trillion. The value of their equity holdings rose by 47.5 percent to N1.3 trillion over the same period. The 25.5 percent 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 are 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.”

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This took the proportion of equities in the AUM of pension funds from 6.1 percent to 7.8 percent 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 percent to reach $55.7 trillion, due in part to stronger capital market performance throughout the year, says 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.