The latest industry report by Agusto & Co projected that Nigeria’s total pension Asset under Management (AuM) is expected to hit N4 trillion by 2024 as estimated industry growth is put at 15.9 per cent over the next three years.
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The report explained that the industry growth is expected to be driven by increased investments from pension fund administrators and institutional clients, following the unification of exchange rates which will ultimately result in the repatriation of funds formerly invested in international money markets and reignite foreign interest in naira-denominated assets.
The firm also indicated that the growth is likely to be fueled by an increase in the size of segregated portfolios, infrastructure funds and REITs, amongst others.
The firm bemoaned the underperformance of the Nigerian asset management industry, which has continued to rank behind peers despite the nation’s huge population of 220 million people and the high foreign exchange remittance inflows from Nigerians living in the diaspora put at $20.9 billion or N9.3 trillion as at 2022.
It stated that the sector is currently constrained by a large informal sector (estimated at 65 per cent of GDP), a high poverty rate of 40 per cent and limited investment opportunities offered by the Nigerian capital market.
The report noted that the challenging operating environment in Nigeria has led to an erosion of real incomes and purchasing power, prompting a surge in investors’ inclination towards dollar-denominated assets.
“The escalation of the year-over-year inflation rate from 15.6 per cent in January 2022 to 21.37 per cent in December 2022, is indicative of an unfavorable macroeconomic climate.
“The parallel market exchange rate stood at N750/$ofs on 31 December 2022, indicating a 63 per cent arbitrage from the official market rate and a 32 per cent depreciation from N570/$ recorded in the corresponding period of the prior year.”
In addition, Naira-denominated investments have lost their lustre in light of current market conditions, and investors are instead looking to high-yield alternatives and FCY-denominated investments.
The firm said investors have shown a growing inclination towards privately managed portfolios rather than the often more restrictive and conservative collective investment schemes, as they seek to gain relatively higher yields from investments.
In addition, many asset managers have focused more on fostering the growth of segregated portfolios through their investment advisory services, while also improving product distribution and enhancing customer experience.
Also, segregated portfolios have continued to account for a large portion of the Industry’s AuM due to the large volume of funds invested by high-net-worth individuals (HNIs) and corporations seeking exposure to specific investment vehicles (in many cases regional Eurobond issuances).
These specific investment options, according to the firm, typically offer relatively higher returns and provide a currency hedge, which may not be widely accessible with collective investment schemes.
Peoplesmind