Introduction of strategies to reduce volatility of Pension Funds in Nigeria
- In response to the unpredictable performance of the Nigerian stock market, Pension Fund Administrators in Nigeria have gradually reduced exposure to the stock market by reducing assets allocated to domestic ordinary shares and more to FGN bonds and other fixed income securities. This action is to ensure efficiency and strengthen risk management strategies.
Analysis of available information conducted by Quantitative Financial Analytics indicates that allocation to domestic ordinary shares has been suffering some reductions month after month since 2013. As at December 2013, 14.58% of pension funds’ assets were invested in domestic ordinary shares, by the same period in 2014, investment in domestic ordinary shares had fallen to 11.79%. By December 2015, pension fund administrators reduced exposure to the stock market by a further 2%, allocating only 9.76% to domestic stock market. The decline continued in December 2016 when just 8.13% of pension fund assets were allocated to domestic ordinary shares, the allocation further reduced in January 2017 to stand at 7.79%.
As at February 28th, 2017, only 7.45% of pension fund assets was in domestic ordinary shares showing that over the last five years or so, pension funds have reduced their exposure to the domestic stock market by 7.13%.
As at December 2013, FGN Bonds and Treasury Bills accounted for 58.75% of pension fund assets, but by February 2017, allocation to FGN Bonds and Treasury bills has increased to 72.36%, an increase of 13.61%.