Following an unprecedented rally that increased the equities market’s Year-To-Date (YTD) returns by 21 per cent, the Nigerian Pension Fund Administrators (PFA) has increased its investment in the stock market by N8.73 billion to N1 trillion from N999 billion recorded in the previous month.
Also, PFA’s total assets under management rose to its highest level at N14.19 trillion, from N13.76 trillion achieved at the end of the year, having gained N133.76 billion in the review period of May, and N768.86 billion between January and May 2022.
Recall that stock market investors had recently decried PFA’s poor participation in Nigeria’s stock market, describing it as a major factor responsible for liquidity challenges in the market.
The total pension fund invested in the market was ₦913 billion as of November last year. The amount is seven per cent of the total fund, which is 23 per cent less than the 30 per cent permissible investment set by the Regulation on Investment of Pension Fund Assets issued by PenCom in 2019.
This suggests that there is still unleveraged approximately ₦3 trillion in the pension pool. When tapped, experts have suggested, the amount would provide the much-needed liquidity to stimulate the market. The potential investment fund is about 12 per cent of the current total market capitalisation.
A total of ₦11.36 trillion or 88.9 per cent of the assets is invested in public debt instruments.
While pension assets have become a major source of domestic capital formation, with a large chunk of it invested in treasury bills and bonds, findings have suggested that PFAs have continued to distance themselves from the equities market. This is said to have been partly responsible for the low level of liquidity. Fortunately, the market capitalisation of the Nigerian Exchange Limited (NGX) rose by N4.687 trillion to N27.874 trillion on Friday, from N23, 187 trillion at which it opened the year on January 4, 2022.
President of Standard Shareholders Association, Godwin Anono, said the increased volatility and illiquidity witnessed in the stock market since the global financial crisis of 2008 and 2009, followed by PFAs’ poor patronage of the equities market have continued to trigger a persistent downturn in the NGX, raising more questions regarding the timeframe for the end of the weak performance.
According to him, the persistent apathy and waning investor confidence that bedevilled the nation’s stock market in the past few years have continued to reflect on market indices and trigger a fall in share prices of listed firms as most blue-chip stocks have fallen to a 10-year low.
Head of Equity Trading, Planet Capital, Paul Uzum, said: “As a result, the market becomes very fragile and susceptible to trading activities of foreign portfolio investors and their reactions to events taking place in other markets,” he explained.
He insisted that the positive performance of the stock market does not need to rely on foreign portfolio investor participation to have a thriving market, noting that the market would be liquid to consistently hedge against the prevailing volatilities if the pension industry will increase its exposure in the stock market.
Further review of PFA’s investment showed that Investments in corporate debt securities increased by 2.1 per cent to stand at N1.19 trillion in May 2022. Some of these investments include corporate bonds, infrastructure bonds, and green bonds.
On the flip side, investments in local money market securities reduced by 2.98 per cent to N2.19 trillion from N2.25 trillion recorded as of April 2022.
The investments in local money market instruments included fixed deposit/bank acceptance and commercial paper issuances.
Retirement Savings Account (RSA) fund II accounted for most of the fund contribution with N6.21 trillion, representing 43.8 per cent of the total pension assets under management.
The RSA Fund III followed with N3.83 trillion, accounting for 27 per cent of the total assets. Also, the fund III category increased by N52.5 billion month-on-month in the review period.
Existing schemes accounted for 10.1 per cent of the total funds, increasing by N5.25 billion to stand at N1.43 trillion.
Also, the CPFAs accounted for 10.7 per cent of the total funds, standing at N1.52 trillion as of the review period.
Investments in government securities also increased by N245.45 billion in the period under review to stand at N8.81 trillion, accounting for 62.1 per cent of the total asset. Investors are now looking into government safe-haven assets such as federal government bonds, treasury bills, agency bonds, Sukuk, and green bonds, due to the volatility across various investment portfolios.
