January 23, 2024/FBNQuest Research
The most recent data from the National Pension Commission (PenCom) reveals that the total asset under management (AUM) of the regulated pension industry increased by 2% m/m and 21% y/y to NGN17.9trn. However, despite the upward trajectory of Nigeria’s pension assets, the country’s pension industry remain underpenetrated. Specifically, the industry’s total AUM is equivalent to a paltry c.9% of 2022 GDP. This compares unfavourably with the global average of 29.4% (in 2020) according to World Bank data.
Excluding money market securities where asset allocation fell slightly by -8% m/m to NGN1.6trn, all other major investment allocations increased m/m.
Specifically, FGN securities which typically dominates the pension asset allocation (accounting for 66% of total AUM) increased by 25% y/y or 3% m/m to NGN11.8trn.
FGN bonds which constitutes a significant proportion of (c.96%) FGN securities and c.63% of the PFA’s total asset mix, increased by 3% m/m or 24% y/y m/m to NGN11.3trn.
The consistent rise in PFA’s asset allocation to government bonds is due to a combination of factors. First, is the increased supply of FGN paper by the DMO to meet its domestic borrowing target in a bid to plug the budget deficit.
Another factor is the yield environment. The tight stance of the monetary policy committee (MPC) led to an unprecedented 225bps hike in interest-rates in 2023.
Pension fund holdings in domestic equities increased markedly by 74% y/y to NGN1.5trn, taking its share of pension AUM to 8%.
The notable y/y rise in equity investments can be primarily attributed to the solid performance of the Nigeria Stock Exchange (NGX) in 2023, particularly in the second half of the year.
The FY’23 NGX performance return of 45.9% outperformed the 2022 return of 20.0% and our forecast of 15%.
Driving the impressive performance of the domestic stock market in 2023 was investors’ positive response towards market reforms implemented by the new administration and solid corporate results delivered by the banks and a few names within the non-financials.
