Pension Fund Managers (PFAs) have been forced to cut down their investment in equities to less than 10 percent, following volatility in the financial services market resulting in loss in equities of up to 60 percent in 2014 and further decline in share prices due to economic headwinds, caused by dwindling global oil prices, BusinessDay investigations reveal.
The development, according to analysts who attributed the fall to safety and caution so as not to further risk contributors money, is against the statutory 20 percent required by the National Pension Commission (PenCom).
Consequently, the 10 percent stake has brought the pension assets investment in equities to about N470 billion, as the end of October 2014 when pension assets rose to N4.5 trillion, according to figures from PenCom.
Misbahu Yola, chairman, Pension Fund Operators Association of Nigeria (PenOp) said enthusiasm to increase investment by the PFAs withered due to increasing erosion and little new investment coming into the market.
Yola, who is also the managing director/CEO of Legacy Pensions Limited, said operators were being watchful for bottom of the market, as this presents a good buying opportunity because prices are very low and attractive.
He however expressed optimism that there is the possibility of a rebound after Nigeria’s general elections. “Imagine when the elections are over and new government direction is clear, the market will rebound, particularly if there is fiscal discipline, Yola observed.
Usman Suleiman, managing director/CEO, FUG Pensions Limited, said that though the market is down PFAs would still invest in the stock market in spite of the down turn because pension funds are long term funds – that is to say, we are not day traders but long term investors.
“We are not selling at present, so whatever loss is recorded in the books will not crystalise. In fact, to a long term investor, this is the time to buy shares of companies that have good fundamentals and long term prospects.”
The total value of pension assets under the Contributory Pension Scheme (CPS) stood at N4.5 trillion as at October 2014 with an average monthly contribution of N20 billion and 30 percent annual growth rate.
This pool of pension funds is a potential platform for attaining the transformation agenda of government in the provision of infrastructure, energy, employment generation and the development of the real sector, justifying why stakeholders are canvassing for inclusion of majority of the working population who reside in the informal sector.
It is pertinent to note that the trend in pension fund assets highlights the increasing significance of Pension Funds as major institutional investors in the Nigerian economy, and this has been largely shown with the FGN bond, where more than 60 percent of the assets have been invested.
It further shows the growing availability of long term finances for the development of the real sector and other economic developmental strides.