Coronation Asset Management, in their recent Nigeria Weekly Market update named “Pension Funds and Equities,” highlighted a compelling observation that holds the potential to attract the attention of policymakers concerning pension fund investments in the Nigerian Stock Market (NGX).
Despite the NGX yielding huge returns this year, pension fund investments in equities appeared to lag. This disparity prompted concern within the asset management company.
It explained that despite the increased value of pension fund investment in the NGX, the administrators refused to increase their size of portfolio investment in the NGX for one particular reason.
It was noted that, for reasons of safety of funds and by the Pension Act of 2004 as amended, preferred to invest more of their funds in low-risk fixed-income assets as opposed to equities.
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Coronation said, “What has happened this year surprises us. Pension funds’ overall allocation to equities has risen (the most recent data shows 8.1 percent of their total funds allocated to equities), but almost all the increase can be attributed to the rise in the stock market rather than purchases.
“So, why don’t pension funds invest more in equities, given the enormous returns of the NGX All-Share Index over the past four years (2020: 50%, 2021: 6%, 2022: 20%, 2023: 41% year-to-date)? One answer is that a large sum of money is tied up in funds for people close to retirement, and these must be allocated to low-risk fixed-income funds as opposed to equities.
“But the biggest single source of new subscriptions, by number, to Nigerian pension funds are from people under 30 years of age, and their funds can be exposed to equities.”
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It argued that because of this preference for the safety of funds, its earlier proposition of Nigerian pension funds warming up to equities should now be discarded.
“We now revise our opinion, expressed last July, that Nigerian pension funds are ‘warming to equities’ and instead believe that they are as cold towards equities as they ever have been.”
The Nigerian Stock Market continues to break new ground, setting records for volume and value trades never obtained since its creation and becoming one of the best equity trading platforms in the world.
The NGX hit an all-share index of 72,143 basis points, the highest it has ever attained since it was established.
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