As of the end of September 2023, data from the Nigerian Pension Commission (PenCom) website indicates that the assets under management (AUM) within the Nigerian pension fund industry have ascended to an impressive N17.35 trillion. This marks a 0.33% upswing compared to the previous month’s N17.29 trillion, showcasing a resilient trajectory. The year-on-year growth is particularly noteworthy, exhibiting a substantial 20.28% increase from the N14.42 trillion recorded in the corresponding period of the preceding year.Thank you for reading this post, don't forget to subscribe!
Quarterly insights reveal a robust growth pattern, with the AUM witnessing a 3.51% increase from N16.76 trillion at the conclusion of June 2023. This surge can be attributed to heightened contributions from both employers and employees, coupled with favorable returns from investments.
Examining the data closely underscores the proactive approach of the Nigerian pension fund industry in diversifying its portfolio. This diversification extends to alternative asset classes such as real estate, private equity, and infrastructure, aiming to mitigate risk and augment returns for pension fund subscribers.
The industry’s strategic diversification yielded significant results, evidenced by a commendable 15.72% return over the nine months leading up to September 30, 2023.
The Nigerian pension fund industry, constituting approximately 20% of the total market capitalization, plays a pivotal role in the Nigerian capital market. Notably, its investments in domestic ordinary shares have been instrumental in propelling the Nigerian Stock Exchange (NGX) to remarkable heights, with the All-Share Index (ASI) surging to 68,000 points—a 15-year high not witnessed since March 2008.
This outstanding performance can be attributed to 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%.
An analysis of the pension fund industry’s portfolio, based on PenCom data, reveals that the largest asset class comprises investments in Federal Government of Nigeria (FGN) securities, constituting 65.2% of AUM as of September 30, 2023. Corporate debt securities have experienced notable growth, expanding from 6% to 10.70% over the past year, likely driven by attractive yields and a commitment to supporting the sector’s growth.
While investments in real estate and private equity have seen growth, these asset classes remain a smaller portion of the overall portfolio. Foreign ordinary shares, infrastructure funds, mutual funds, and real estate as an alternative investment class have not gained significant traction in the Nigerian market.
The Nigerian pension fund industry is on a rapid growth trajectory, anticipated to surpass the N20 trillion mark by the end of 2023. This growth is expected to play a pivotal role in the development of the Nigerian economy in the coming years. The diversification of the industry’s portfolio into a broader 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, enhancing the financial security of their members and facilitating long-term investment in the economy. However, there is still room for creating an environment that encourages fund administrators to invest in alternative assets.