Operators in the Nigerian Stock Market on Tuesday attributed low participation of Pension Fund Administrators (PFAs) in equities market to unimpressive returns.
They reported that negative returns recorded by the Nigerian Stock Exchange (NSE) in 2018 and 2019 made PFAs to reduce their exposure in the equities market.
According to source, though the PFAs’ regulation (Amended) requires the administrators to invest as much as 30 percent of their total assets annually in equities, that has not been the case, as they committed mere 5.36 percent of their total assets in equities.
Data from the National Pension Commission indicated that about N7 trillion of N9.99 trillion pension fund assets had been invested in the Federal Government securities by PFAs.
Latest data from the National Pension Commission also showed that the PFAs raised their investment in infrastructure to N40.52 billion as of November 30, 2019.
The N7 trillion invested in the Federal Government securities represents about 70.88 percent of the total pension fund assets.
Malam Garba Kurfi, the Managing Director, APT Securities and Funds Ltd., said that purpose of investment was for good returns.
Kurfi said that PFAs invest in FGN Securities due to good returns offered by them when compared with equities.
He said that most Federal Government investment before now offered double digits returns, unlike equities that closed at -14.74 percent in 2019.
Kurfi, however, expressed optimism that the trend would change this year with the rally being experienced in the equities market.
According to him, government instruments offer single digit return at the moment, whereas the stock market return presently is about 10 percent.
Kurfi said that many PFAs were returning to equities to take advantage of the upward trend.
He noted that the market performance was the determining point whether to invest in equities or not.
Also, Prof. Sheriffdeen Tella, Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, said that investments by PFAs were driven by predictable profits and government regulations.
Tella said that returns on investment in government bonds were predictable and higher than what could be earned in the stock market:
“Participation of PFAs in equity can lead to improvement in the market, but they can invest only invest if there are attractive equities.
“There will be need for interactions between stock market operators and PFAs to promote and sell their products to the PFAs.”
Amaka E. Nliam