BY FESTUS OKOROMADU
The Nigerian pension fund industry appears to have embarked on a rapid growth trajectory and it is poised to surpass the N20 trillion marks by the end of 2023, with expectations that it continues to play a pivotal role in the development of the Nigerian economy in the coming years.
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 percent increase compared to the previous month’s N17.29 trillion.
The year-on-year growth is even 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 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.
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 15.72 percent return in the nine months leading up to September 30, 2023.
Experts have attributed the rapid growth to diversification of the industry’s portfolio into a wider range of asset classes, insisting that the initiative has led to a positive development, benefiting both pension fund members and the overall economy.
Researchers from Cowry Asset Management says, “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. However, there is still room to create an environment that encourages fund administrators to invest in alternative assets.”
“This figure represents a 0.33 percent increase compared to the previous month’s N17.29 trillion”
They noted that the Nigerian pension fund industry plays a significant role in the Nigerian capital market, accounting for approximately 20 percent of the total market capitalization.
They said, the industry’s investments in domestic ordinary shares have bolstered the growth of the Nigerian Stock Exchange, which has enjoyed remarkable returns, with the All-Share Index 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 Capitalization reached 66,382.14 points and N36.33 trillion, respectively, reflecting a year-to-date return of 29.52 percent,” the analyst from Cowry stated.
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 securities, such as bonds and treasury bills, constituting 65.2 percent of AUM as of September 30, 2023.
Corporate debt securities have witnessed a notable increase, growing from 6 percent to 10.70 percent 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 (9.44%) and domestic ordinary shares (7.99 percent)
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.
