Data from the National Pension Commission (PenCom) revealed that the pension industry’s Net Asset Value in the Nigerian stock market rose to N1.39 trillion as of the end of September 2023, marking an additional N478.8 billion compared to N908 billion recorded as of the beginning of the year.
In other words, Pension Fund Administrators (PFAs) increased the value of their assets in the local bourse by 53% in the 9-month period, following a bullish run in the stock market.
The All-share index gained 29.52% in the same period largely driven by institutional local investors.
The growth of the pension industry’s exposure in the stock market was also in tandem with the performance of the NGX Pension Index, as it rallied by 58.9% to close the period at 2,848.38 index points.
Notably, the Nigerian pension industry has been recording significant growth in recent years, following several regulatory reforms by PenCom, which has seen the number of PFAs in the industry reduce as a result of some mergers and acquisitions.
The industry’s total assets gained a whopping N2.36 trillion in the first nine months of the year to stand at N17.35 trillion as of the end of September 2023, representing a 15.7% increase when compared to N14.99 trillion as of the end of December last year.
Other highlights
- Assets in foreign stocks increased 41% year-to-date September 2023 to N153.68 billion from N108.99 billion recorded as of the beginning of the year.
- Federal government (FGN) securities, which accounted for most of the pension assets recorded a 17% growth YTD to stand at N11.31 trillion, while corporate debt securities rose by 12% to N195.79 billion.
- On the flip side, assets in money market instruments declined by 17% to N1.64 trillion from N1.98 trillion recorded as of December 2022.
- Real estate also grew marginally by 1% to N219.79 billion as of the reference period.
- In terms of fund category, Fund I recorded the highest growth, jumping by 78% YTD to N132.6 billion, while Fund V despite being the smallest category grew by 50% to N561.8 million.
The trend in PFA assets in the NGX suggests a positive outlook for both pension fund managers and the Nigerian stock market, provided economic stability and prudent investment strategies are maintained.
Despite growth, PFAs’ exposure in stocks remains modest
The Nigerian Pension Industry operates under stringent regulations due to the nature of handling public funds, primarily the contributions of workers meant for their retirement. The PenCOm enforces guidelines and limits to ensure the safety and security of contributors’ funds.
One critical aspect of these regulations is the restriction placed on PFAs regarding the allocation of contributors’ funds into volatile assets.
This cautious approach is in line with the need to protect contributors’ savings and ensure that they have a secure and reliable source of income during their retirement years.
To achieve this, the PFAs adopt a mix of fixed and variable assets in their investment portfolios.
This diversified approach takes into consideration the risk tolerance of contributors and the different fund categories within the pension system.
Further analysis of the data showed that stock assets (local and foreign) accounted for 8.9% of the total industry assets as of September 2023.
This is marginally higher than the 6.8% and 7.7% recorded as of the end of 2022 and 2021 respectively.
On the other hand, the combination of FGN and corporate securities accounted for 76% of the total assets, indicating that the bulk of the industry’s exposure is still towards less risky asset classes.
Bottom line
The surge in PFA assets in Nigerian stocks, in tandem with the broader growth of the pension industry, suggests a positive outlook for both pension fund managers and the Nigerian stock market.
- As long as the Nigerian economy continues its current trajectory of stability and growth, the pension industry’s assets in the stock market are likely to remain robust.
- However, it’s essential to remain vigilant and take a cautious approach. Financial markets can be inherently volatile, and it’s crucial for PFAs to maintain a balanced and diversified investment strategy.
- The PenCom’s regulatory oversight will continue to be essential in ensuring the industry’s stability and adherence to best practices.