In an effort to control risks and maximize profits, Pension Fund Administrators (PFAs) in Nigeria increased their equity holdings by 40% in a single year.
Pension Fund Operators Association of Nigeria (PenOp) data shows that the fund managers increased their equity investments from N1.54 trillion in July 2023 to N2.16 trillion in July 2024, a 40.25 percent rise over time.
According to Oguche Agudah, CEO of PenOp, the 40% increase in equity investments over the previous year is indicative of the stock market’s good performance and potential for more gains.
He claims that there was a notable seventy percent increase in equity assets for private equity investments, going from N61.6 billion in July 2023 to N104.7 billion in July 2024.
In the context of pension funds looking to maximize returns over the long run, he pointed out that the recent spike in private equities reflects a strong interest in high-growth prospects inside private markets.
In the first half (H1) of 2024, the NGX experienced a growth of 33.81 percent, while the All Share Index exceeded forecasts, rising from 74,773 points at the start of the year to 100,057.49.
Nigeria’s stock market was the top-performing market in Africa in H1, 2024.
According to stockbroker Donald Osuji, pension funds in Nigeria may be investing in stocks to boost returns, diversify risk, guard against inflation, and take advantage of chances for economic expansion.
However, he pointed out that long-term repricing of assets across markets and instruments has driven prices down to levels that are impossible to resist.
“Historically, fixed-income investments like government bonds or savings accounts have typically offered lower long-term returns than equities. Pension funds are frequently seeking for ways to increase their returns so that they can pay their future obligations,” he stated.
As stated earlier by Agudah, pension assets in Nigeria have grown significantly over time due to strategic investments made in a variety of industries.
According to him, more than half of PFA’s assets are in Federal Government of Nigeria (FGN) securities, which had a significant 19% increase from N11.03 trillion in July 2023 to N13.18 trillion in July 2024.
He noted that this growth reflects the consistent returns and perceived security of FGN assets as the cornerstone of pension fund portfolios.
“In addition, investments in money market instruments increased by 31% to N1.99 trillion from N1.59 trillion the previous year, benefiting from the consistent income and decreased volatility that these assets normally provide. Corporate debt investments increased by 22% to N2.25 trillion, indicating a strong demand for corporate bonds and other debt instruments that offer steady returns while controlling risk,” Agudah added.
The Nigerian stock exchange outperformed the Casablanca Stock Exchange (+9.99 percent), Namibian Stock Exchange (+10.06 percent), Tunis Stock Exchange (+11.15 percent), and The Egyptian Exchange (+11.54 percent) in the H1 assessment.
Nigeria’s stock market accomplished this even though stocks became less appealing due to rising fixed-income yields. Still, a few hardy investors stepped in to search Customs Street for deals.
The closing value on July 31, 2024, corresponds to 3.41 percent of the closing market capitalization of the NGX All-Share Index on that day, according to Michael Oyebola, the finance analyst at Money Counsellors.
According to Oyebola, PFAs’ exposure to the stock market could be increased if all else was equal and within the bounds of appropriate risk management strategies. However, this conclusion ignores restrictions on qualifying stocks, limits on individual stock limits, and other factors.
According to researchers at FBNQuest, the regulated pension industry’s total assets under management (AUM) continued to rise in July 2024.
The National Pension Commission (PenCom) recently released data showing that Nigeria’s pension assets rose by roughly N386 billion to N20.9 trillion, or a meager two percent month over month (m/m).
Nonetheless, the growth of the pension AUM was more notable when seen year over year (y/y), rising by 22%.
