Pension Fund Administrators (PFAs) in Nigeria increased their investments in equities by 40 percent in one year to manage risks and boost returns.
The fund managers grew equities investments from N1.54 trillion in July 2023 to N2.16 trillion in July 2024, indicating a 40.25 percent increase over the period, according to data compiled by the Pension Fund Operators Association of Nigeria (PenOp).
Oguche Agudah, chief executive officer, PenOp, said the growth of equities investments by 40 percent over the past year highlights a strong performance in the stock market and a potential for higher returns.
According to him, private equity investments also experienced significant equity assets growth of 70 percent, from N61.6 billion in July 2023 to N104.7 billion in July 2024.
He noted that this surge in private equities underscores a keen interest in high-growth opportunities within private markets, where pension funds seek to maximise returns over the long term.
The NGX grew by 33.81 percent in the first half (H1) of 2024, just as the All Share Index surpassed expectations, moving from the 74,773 points it started at the beginning of the year to 100,057.49.
In Africa, Nigeria topped the 10 best-performing stock markets in H1, 2024.
Read also: PFAs flock to infrastructure bonds on high yields
Donald Osuji, a stockbroker, said pension funds in Nigeria might be pursuing equities to enhance returns, manage risk through diversification, protect against inflation, and capitalise on economic growth opportunities.
He however noted that prices have become too low to resist due to prolonged repricing of securities across markets and instruments.
“Historically, equities tend to offer higher long-term returns compared to fixed-income assets like government bonds or savings accounts. Pension funds are often looking for ways to boost their returns to ensure they can meet their future obligations,” said.
According to Agudah, earlier quoted, pension assets in Nigeria have, over the years, experienced substantial growth, driven by strategic investments across various sectors.
He said over half of PFAs investments is allocated to Federal Government of Nigeria (FGN) securities, which saw a notable increase of 19 percent from N11.03 trillion in July 2023 to N13.18 trillion between July 2023 and July 2024.
“This growth reflects the steady returns and perceived security of FGN securities as a foundation of pension fund portfolios,” he said.
“Additionally, investments in money market instruments grew by 31 percent, to N1.99 trillion from N1.59 trillion with the same year, benefiting from the steady income and lower volatility these assets typically offer. Corporate debt investments saw a 22 percent increase to N2.25 trillion, reflecting a robust demand for corporate bonds and other debt instruments that provide stable returns while managing risk,” Agudah further said.
Read also: PFAs watch exposure to equities on market volatility
In the H1 review, the Nigerian bourse outperformed Casablanca Stock Exchange (+9.99percent), Namibian Stock Exchange (+10.06 percent), Tunis Stock Exchange – (+11.15 percent), and The Egyptian Exchange – (+11.54 percent).
Nigeria’s equities market achieved this feat despite that increased yields in the fixed income space made equities less attractive. However, some resilient investors still moved in to hunt for value on Customs Street.
Michael Oyebola, finance analyst at Money Counsellors, said the closing value on July 31, 2024, equates to 3.41 percent of the closing market capitalisation of the NGX All-Share Index at that date.
Oyebola said all things being equal and within the parameters of the appropriate risk management strategies, that PFAs’ exposure to the equities market could be increased but that conclusion does not take into account individual stock limit exposures, regulations around qualifying stocks, and other measures.
In July 2024, the total assets under management (AUM) of the regulated pension industry sustained its upward trend, according to analysts at FBNQuest.
According to the latest data from the National Pension Commission (PenCom), Nigeria’s pension assets increased by a modest two percent month-on-month (m/m) or by about N386 billion to N20.9 trillion.
However, on a year-on-year (y/y) basis, the growth of the pension AUM was more significant, expanding by 22 percent.
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