The pension industry’s asset allocation or holdings to domestic equities rose by 73 per cent year-on-year (y/y) and 5.6 per cent month-on-month (m/m) to N1.6 trillion at the end of December 2023, the latest monthly report by the National Pension Commission (PENCOM) has revealed.
The report stated that the surge in domestic equity holdings, reflects positive performance as evidenced by the rise in the Nigerian Exchange Limited (NGX)’s All Share Index (ASI), an index which tracks the general market movement of all listed equities.
The NGX ASI, at the end of 2023 rose by +45.9 per cent y/y and +4.8 m/m during the reporting period. Currently, the market’s year-to-date (ytd) stands at +35.5 per cent.
Furthermore, the NGX Pension Broad Index (NGXPENBRD), which was launched in June 2023, to track the performance of equity securities has shown positive performance, increasing by 60 per cent since its inception.
However, in recent days, the market has been bearish partly due to the latest Monetary Policy Rate (MPR) rate hike to 22.75 per cent, and relatively weak corporate earnings.
According to market operators who spoke with Daily Sun, PFAs are likely to reallocate a greater portion of pension assets to fixed income securities, anticipating higher yields in this segment given the expectation of higher yields in the fixed-income market.
PENCOM had in its report, revealed that the assets under management (AUM) of the regulated pension industry increased by 22.4 per cent y/y to N18.4 trillion.
On a m/m basis, the AUM grew by 2.4 per cent. This increase reflects a positive trajectory for the industry. Notably, FGN debt securities accounted for 65 per cent of the total AUM in December 2023 compared with 53 per cent recorded in the corresponding period of 2022.
Meanwhile, other asset classes such as private equities, real estate, and infrastructure funds, accounted for 8.5 per cent, 7.3 per cent, and 3.9 per cent of total AUM, respectively.
According to PENCOM, the average return on investment (ROI) for PFA’s in Nigeria for the full year (FY) 2023 was 15.7 per cent compared with 9.7 per cent recorded for FY 2022.
The report revealed that total FGN debt securities held by the Pension Fund Administrators (PFAs) increased by 23.6 per cent y/y and 1.5 per cent m/m. Specifically, FGN bond instruments held by the PFAs increased by 24.2 per cent y/y to N11.5trn, accounting for 62.4 per cent of total AUM.
Reacting to the report, Chinwe Egwim, Senior Economist, at Coronation Research, said, “Overall, while challenges such as market volatility and declining pension contributions persist, the Nigerian pension industry continues to show resilience and potential for growth, with efforts underway to expand coverage and improve investment opportunities”.
SOURCE: THESUN
