By Chinwendu Obienyi
Owing to an elevated interest environment, recent data from the National Pension Commission (PenCom) revealed that PFAs’ asset allocation to money market instruments improved, with a robust year-on-year (y/y) growth of 33 per cent to N2.2 trillion.
This is even as the total assets under management (AUM) of the pension industry increased by 23 per cent y/y to N22.5 trillion in December 2024.
This represents an increase of N4.2 trillion from the previous year. The industry’s performance has been consistently strong, with only a brief moderation in March 2024.
Analysing the data, total pension assets accounted for approximately 8 per cent of Nigeria’s GDP in 2024, indicating the industry’s potential for further growth.
Underpinning the improved y/y gain in total AUM was pension funds’ investment in FGN securities, with a robust growth of 18 per cent y/y to about N14.1 trillion in Dec 2024.
Driving the asset concentration in government assets was the FGN Bonds, which constitute about 53 per cent of pension AUM. In terms of value, PFA’s holding of FGN paper increased by 5 per cent y/y to N12.0 trillion.
According to analysts at FBNQuest, the considerable proportion of government securities in the overall AUM portfolio can primarily be attributed to PENCOM’s regulatory limits on investments.
Additionally, the high-interest rate environment in 2024, and the government’s increased borrowing need to plug the 2024 budget deficit also drove the y/y growth in investments in fixed income securities.
“To further illustrate the renewed interest in government assets, pension holdings in treasury bills more than doubled to N704.5 billion in December, up from N214.5 billion in the year-earlier period.
PFAs’ asset allocation to money market instruments also improved, with a robust y/y growth of 33 per cent to N2.2trn, thanks to the elevated interest environment. Additionally, pension managers benefitted from the impressive performance of the domestic equities market last year, with the value of pension AUM increasing by N670.7 billion y/y to about N2.2 trillion last year”, FBNQuest said in its report.
The NGX market delivered a return of 37.7 per cent y/y in 2024, driven by strong investor interest in some stocks across key sectors, such as oil and gas, banking and industrials while the total number of pension accounts also saw a modest rise of 4 per cent y/y to almost 10.6 million.
This implies an average value of N2.13 million per RSA account holder, well above the N1.80 million in the year-earlier period.
The Nigerian Pension industry’s impressive growth in 2024 reflects a combination of regulatory factors, market conditions, and increased participation. The concentration in government securities and the growth across various asset classes indicate a diversified approach to investment within regulatory constraints.