The National Pension Commission has said that Nigeria’s pension funds industry has continued to experience substantial growth, with total Assets Under Management recording a 22.5 percent year-on-year increase as at December 2023.
According to the latest Pencom unaudited report, the AUM also rose by 2.43 percent on a month-on-month basis to N18.36 trillion by the end of December 2023, reflecting a robust industry growth trajectory.
Breaking down the AUM by asset class and fund type, the report highlights that a significant portion, 64.9 percent, is invested in Federal Government of Nigeria securities.
Corporate debt securities follow at 10.4 percent, with domestic ordinary shares making up 8.6 percent of the total AUM.
Despite this growth, the industry is deemed underpenetrated, with its total AUM equivalent to only 9 percent of Nigeria’s 2022 GDP— a notable disparity when compared to the global average of 29.4 percent in 2020, according to World Bank data.
Further analysis of Pencom’s data underscores the dominance of FGN securities, constituting the largest asset class for pension funds.
FGN bonds, in particular, make up 96 percent of total FGN securities and more than 60 percent of fund administrators’ overall asset mix.
The report reveals that investment in FGN securities reached N11.92 trillion in December 2023, marking a substantial 24 percent year-on-year growth. This surge is attributed to increased supply by the Debt Management Office (DMO) to meet the federal government’s domestic funding targets and address the budget deficit in the N23 trillion budget for FY 2023.
Notably, despite a 225 basis points increase in the monetary policy rates to 18.75 percent by the Central Bank of Nigeria (CBN) in 2023, pension fund administrators (PFAs) continued to invest in FGN securities, driven by the relatively safe and stable returns and the prevailing yield environment.
The report also highlights the significant growth in pension fund investments in domestic ordinary shares, experiencing a remarkable 70 percent year-on-year increase to N1.57 trillion. This surge is attributed to the robust performance of the Nigerian Stock Exchange (NGX) in 2023, where the all-share index reached an unprecedented 74,000 index points—a milestone not seen in 15 years since March 2008. The market’s resilience is attributed to various factors, including robust corporate earnings, dividend declarations, government led market reforms, and increased interest from both domestic and foreign investors. Foreign transactions on the NGX increased by an impressive 113.94% in November 2023, reaching N71.37 billion, indicating positive investor sentiment. The domestic investor segment outperformed foreign investors by approximately 52%, showcasing a robust performance in the local market.
While real estate and private equity have seen year-on-year growth, they remain a small portion of the overall portfolio. Other alternative investment classes, such as foreign ordinary shares, infrastructure funds, mutual funds, and real estate, have not gained significant traction in the Nigerian market.
Examining fund types, the report indicates steady growth in Retirement Savings Account (RSA) funds, as more Nigerians participate in the Contributory Pension Scheme. However, the Retiree Fund accounts for the largest share, representing 58.02 percent of total AUM, followed by RSA Funds at 30.59 percent, and Closed Pension Fund Administrators at 1.39%.
