Experts seek increase in PFA’s participation in equities amid 41% return

With the 41 per cent year-to-date (YTD) return on equities, experts have advocated increased pension industry’s participation in the stock market to boost liquidity.

According to the experts, the total of N1.43 trillion, culminating in 8.1 per cent of its total assets investment in equities unsettling stakeholders.

They argued that given the enormous returns of the NGX All-Share Index over the past four years (2020, 50 per cent; 2021; 6 per cent; 2022, 20 per cent and 2023: 41 per cent), PFAs should increase their patronage in the stock market to boost the value of listed equities.

Analysts at Coronation Research argued that although pension funds’ overall allocation to equities has risen to 8.1 per cent (N1.43 trillion as at October 2023) from 6.07 per cent or N1.04 trillion as at the first quarter (Q1), 2023, almost all the increase could be attributed to the rise in the stock market rather than purchases.

The latest Agusto & Co report on the pension industry stated that Nigeria’s assets under management (AuM) stood at N16.1 trillion ($34.9 billion) as at May 31, 2023, representing a 13.5 per cent increase from the corresponding period in the prior year.

Sadly, stock market investors have continued to decry PFA’s poor participation in Nigeria’s stock market, describing it as a major factor responsible for liquidity challenges in the market.

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.

Coronation Research said: “At the end of Q1 2023 Nigerian pension funds had a total N1.04 trillion in equities, 6.07 per cent of their total assets. The latest data from the end of October shows them with a total N1.43 trillion in equities (8.1 per cent of total assets). We assume that these are mainly NGX-listed equities.

“Between Q1 2023 and the end of October, the NGX All-Share Index rose by 27.7 per cent. So, if the pension funds had neither bought nor sold equities during the intervening seven months, we would expect this total to have increased by the end of October.

The experts stated categorically that the way Nigerian pension funds value bonds is becoming problematic, adding that there is an understandable tendency to hold bonds to maturity, which can eventually lead to not valuing them according to the mark-to-market method.

“In a year like 2023, when market interest rates rise and the mark-to-market value of bonds falls, this is important. Knowing the market value of a bond helps compare its value with that of equities.”

Further, they suggested that the pension fund should deploy funds from people under 30 years of age which is currently the biggest single source of new subscriptions by number to equities to provide the much-needed liquidity to stimulate the market.

Head Equity, Planet Capital, Dr Paul Uzum, had stated 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.