Unlike economies like that of the United States of America, where most pension savers, through such schemes as 401K, participate or invest heavily in mutual funds, Nigerian pension funds tend to be shying away from investing in mutual funds. As Nigerian pension assets increase, their allocations to mutual funds decrease.
Analysis of data from PenCom shows that as of the end of 2020, pension fund assets allocated to open/closed-end funds (another nomenclature for mutual funds), stood at N76.4 billion but as of the end of May 2021, that number had fallen to N32.7 billion. That is a whopping 57.12% decrease or N44 billion decrease.
The reason why pension fund managers are shying away from mutual funds may be because the mutual funds’ investment strategies do not align with that of the pension funds. While pension fund assets are held predominantly in fixed income securities like Federal Government bonds, many mutual funds, with the exception of the money market funds, have exposures to the Nigerian equity market.
This is a risk that the pension fund managers may not be willing to take, given the asset-liability composition of their portfolios and the regulatory requirements hanging over their heads. Be that as it may, one would think that pension fund managers in Nigeria can derive some pecuniary benefits from investing in Eurobond and Dollar funds, many of which have been recording improved performance from the depreciating local currency.
The lack of data on mutual funds has also contributed to its unpopularity as an investible asset class. Pension fund managers are, however, in a position to access and analyze mutual fund data, given that most of them are subsidiaries of the broader fund management companies that oversee the mutual funds.
