The Nigerian pension fund industry is on a rapid growth trajectory and is poised to surpass the N20 trillion mark by the end of 2023.
The latest data sourced from the Nigerian Pension Commission (PenCom) website reveals that the assets under management (AUM) in the Nigerian pension fund industry reached N17.35 trillion by the end of September 2023. This figure represents a 0.33 person increase compared to the previous month’s N17.29 trillion.
Expert fund managers from Cowry Assets Management Limited who made this projection at the weekend added that they expect the industry to continue to play a pivotal role in the development of the Nigerian economy in the coming years.
According to them, the diversification of the industry’s portfolio into a wider range of asset classes is a positive development, benefiting both pension fund members and the overall economy.
By spreading investments across diverse assets, pension funds can reduce risk and generate more sustainable returns, thus enhancing the financial security of their members and facilitating long-term investment in the economy, the firm stated in a review note of the industry.
However, experts believe there is still room to create an environment that encourages fund administrators to invest in alternative assets.
According to PenCom data, the year-on-year growth is even more impressive, showing a 20.28 percent rise from N14.42 trillion during the same period in the previous year.
On a quarterly basis, the AUM increased by 3.51 percent from N16.76 trillion at the close of June 2023.
“This robust growth can be attributed to increased contributions from both employers and employees, as well as favourable investment returns.
“A closer look at the data highlights the Nigerian pension fund industry’s proactive approach to diversifying its portfolio,” Cowry Assets observed.
This diversification extends into alternative asset classes, including real estate, private equity, and infrastructure.
The primary goal of this strategy is to mitigate risk and enhance returns for pension fund subscribers. As a result, the
industry achieved a noteworthy 15.72percent return in the nine months leading up to September 30, 2023.
The Nigerian pension fund industry plays a significant role in the Nigerian capital market, accounting for approximately 20percent of the total market capitalisation.
Notably, their investments in domestic ordinary shares have bolstered the growth of the Nigerian Stock Exchange (NGX), which has enjoyed remarkable returns, with the All-Share Index (ASI) surging to 68,000 points in a 15-year high, not witnessed since March 2008.
This remarkable performance can be attributed to various factors, including market reforms and increased interest from both domestic and foreign investors. During this period, the ASI and Market Capitalisation reached 66,382.14 points and N36.33 trillion, respectively, reflecting a year-to date return of 29.52percent according to the assets managers.
The breakdown of the pension fund industry’s portfolio, as per PenCom data, reveals that the largest asset class is investment in Federal Government of Nigeria (FGN) securities, such as bonds and treasury bills, constituting 65.2percent of AUM as of September 30, 2023. Corporate debt securities have witnessed a notable increase, growing from 6percent to 10.70percent over the past year, likely due to attractive yields and a desire to support this sector’s growth.
Other asset classes include money market instruments (9.44percent) and domestic ordinary shares (7.99percent).
While investments in real estate and private equity have also seen growth, these asset classes remain a small portion of the overall portfolio.
Additionally, foreign ordinary shares, infrastructure funds, mutual funds, and real estate as an alternative investment class have not gained significant traction in the Nigerian market.
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