Total pension industry assets under management hit N14.9 trillion in December 2022 despite the limited investible options for pension fund managers in Nigeria, according to the latest data obtained from the National Pension Commission (PenCom).
The industry’s total assets under management have witnessed burgeoning growth of more than 11% in one year, from N13.4 trillion in December 2021.
The revolution of the Nigerian pension industry has transitioned from one with greater participation from the public sector to one that runs a defined contribution system for all public and private sector employees.
This has been brought to reality by the robust regulation of the industry’s regulation, which
has remained an underpinning factor for the industry’s expansion.
With a positive rise in the number of contributors to 9.86 million members at the end of December, the total number of contributions is expected to surpass the 10 million membership mark by the close of the first quarter of 2023 after the total pension assets projections to reach N14.8 trillion by the end of 2022 exceed expectations by around N1.57 trillion to N14.99 trillion from N13.42 trillion for the same period in 2021.
Based on the commission’s report, the asset class composition of pension fund AUM has scarcely been altered over the years; but it notes that the share of corporate debt in the overall portfolio increased to 11.1% in December 2022, up from 7% the previous year.
In terms of value, corporate debt increased by N717 billion to NGN1.7 trillion, representing an increase of 76% year on year.
This sharp increase can be attributed to bond issuances by some large corporates, such as Dangote Industries and its cement company (N188 billion and N116 billion) and MTN Nigeria (N115 billion), among other firms, during the year.
According to the report, FGN bonds, which account for the largest share of pension funds’ AUM, grew by 11% year on year to N9.2 trillion and accounted for around 61.5% of PFAs’ funds under management.
Investment in FGN Bonds increased by N894 billion during the year as a result of the high-interest rate environment in 2022, which fueled investor interest in fixed-income securities.
For the equities that delivered a strong return in 2022 at 19.98% from 6% in 2021, after the strong performance in the first half of the year, we saw a decline of 3.2% year on year in total equity (local and foreign) holdings by PFAs to N1.02 trillion.
A major chunk of the decline was witnessed during the second half of 2022, which saw a steady market decline for equities stoked by rising yields in the fixed income market.
Contrastingly, the value of pension AUM held in domestic equities decreased marginally by 1% year on year to almost N908 billion, taking its share to 6.1% from 6.8% in December 2021.
For Cowry Research, we think that a significant factor hindering wider acceptance and rapid growth of the industry has been the unavailability of investible options, just as fund managers were prohibited from owing foreign securities by sourcing FX on their own.
However, for the time being, we believe that the robust regulatory framework provided by the industry regulator (PenCom) will continue to underpin the growth and expansion of the industry, as evidenced by the legislative support provided by the Pension Reform Act (PRA) of 2004 coupled with the amendment in 2014, which effectively redefined retirement planning in Nigeria and led to a significant boost in the number of enrollees and the size of managed assets in the industry.