Pension Asset Rises by 22% to N20.5Trn in 12-Month
Nigeria’s pension fund assets climbed by 11.5990% to N20.484 trillion at the end of first half of financial year 2024, according to data from regulator, from N18.355 trillion in Dec, 2023.
Over 12 months period, Pension assets has grown by 22.21% year on year from N16.761 trillion in the first half of 2023 to N20.484 trillion in June 2024, according to figure obtained from the National Pension Commission (Pencom).
Breaking down the AUM by asset class and fund type as at June 2024, the report highlights that a significant portion, 63.3%, was invested in Federal Government of Nigeria (FGN) securities.
On the similar track, investment in corporate debt securities followed at 10.8%, with domestic ordinary shares making up 9.6% and money market instruments eating 9.3% of the total AUM.
In an emailed note, Cowry Asset Limited said despite this growth, the industry is deemed underpenetrated, with its total AUM equivalent to only 8.9% of Nigeria’s 2023 gross domestic product (GDP).
This is a notable disparity when compared to the global average of 29.4% in 2020, according to World Bank data cited by the investment banking firm.
FGN bonds, in particular, makes up to 96% of total fund parked into FGN securities and more than 60% of fund administrators’ overall asset mix in the period.
The report reveals that investment in FGN securities reached N12.96 trillion in June 2024, marking a substantial 19.4% year-on-year growth from the N10.86 trillion in June 2023.
Demand for bond was propelled by rising yields and high interest rates environment as well as the increased supply of FGN papers by the Debt Management Office (DMO) to meet the federal government’s domestic funding targets amounting to N6.12 trillion 2024 budget.
MarketForces Africa reported that Debt Management Office has met 70% of its targeted local borrowings from FGN bonds sales year to date – N4.3 trillion has been raised.
In its market update, the investment firm said despite a 750 basis points increase in the monetary policy rates to 26.25% in May 2024, pension fund administrators (PFAs) continued to invest in FGN securities.
Analysts noted that pension asset managers’ appetite was driven by the relatively safe and stable returns and the prevailing attractive yield environment.
The report also highlights the high growth in pension fund investments in domestic ordinary shares, experiencing a 55% year-on-year increase to N1.91 trillion.
A drive into the equities market was attributed to the robust performance of the Nigerian Stock Exchange (NGX), however, hampered by the negative market internals that have continued to buoy weaker investors’ sentiment.
During the first six months of 2024, the local bourse performed well with the ASI accelerating up 33.81% year-to-date, amid second-quarter-end window dressing which resulted in N15.68 trillion worth of gains for equity investors.
On a monthly analysis, the major asset categories such as treasury bills registered the highest gain in June, rising by 8% month on month to roughly N400 billion, according to analysts update.
Treasury instruments have benefited from the prevailing elevated yield environment due to the CBN’s restrictive monetary stance and tight market liquidity. Also, pension fund holdings in domestic equities continue to rise.
In absolute terms, the total value of domestic equities portion increased by 4% to N1.9 trillion, while FGN bonds, which make up more than half (60%) of overall pension assets, amounted to N12.2 trillion in June, implying an increase of almost N141 billion relative to the previous month.
Analysts at Cowry Asset Limited said they see the pension industry’s positive growth trajectory playing a pivotal role in Nigeria’s economic development in the mid to longer term.
The firm attributed the sustained interest of pension managers in bond securities to the monetary policy committee’s hawkish posture and the DMO’s increased issuance of FGN paper.
This is expected to continue with more allocations to federal government securities, Cowry Asset Limited said while experts maintained that demand will be driven by higher yields due to the elevated interest rate environment.
The performance of the equities market and fixed income market is anticipated to contribute significantly to the growth of total AUM. #Pension Asset Rises by 22% to N20.5Trn in 12-Month
