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Why PFAs shun equities market

Operators in the Nigerian stock market have attributed low participation of Pension Fund Administrators (PFAs) in equities market to unimpressive returns.

They said in Lagos that negative returns recorded by the Nigerian Stock Exchange (NSE) in 2018 and 2019 made PFAs to reduce their exposure in the equities market.

PFAs regulation (Amended) requires the administrators to invest as much as 30 per cent of their total assets annually in equities, that has not been the case, as they committed mere 5.36 per cent 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 Nov. 30, 2019.

The N7 trillion invested in the Federal Government securities represents about 70.88 per cent 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 per cent 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 presenting is about 10 per cent.

Kurfi said that many PFAs were returning into 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 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,” Tella said.

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