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Pension funds decline by 45% in dollar terms

The value of pension funds has declined by 45.18 per cent when valued in dollars, following the devaluation of the naira.

Data obtained from the National Pension Commission’s website showed that the net asset value of pension funds stood at N17.35tn as of September, amounting to $19.83bn when dollarised, using the official exchange rate of 874.71/$ on Wednesday.

However, before the devaluation of the naira in mid-June, when the Central Bank of Nigeria tried to unify the country exchange rates; the pension funds were valued at N16.76tn in June, and worth $36.17bn in dollar term, using the exchange of 463.38/$ on June 9.

In a memo dated June 14, 2023, which was signed by Director of Financial Markets, Angela Sere-Ejembi, the apex bank, announced the collapse of the segments of the foreign exchange market into the Investors and Exporters window, which was subsequently renamed the Nigerian Autonomous Foreign Exchange Rate Fixing window.

Since the harmonisation, the local currency has been struggling against the dollar, despite the government’s efforts to strengthen it.

In an attempt to raise investors’ confidence, the CBN this month began to clear forex backlogs in banks.

The harmonisation of the forex rate was a fallout of President Bola Tinubu’s inauguration speech, where he urged the CBN to unify the country’s exchange rate.

The value of the pension funds has also been eroded by the accelerating inflation in the country, which stood at 22.79 per cent in June but has soared to 26.72 per cent in September.

In a chat with The PUNCH, the Head of the Corporate Communications Department, PenCom, Abdulqadir Dahiru, said that the devaluation of Nigeria affected not only pension funds but had a wider effect on the economy.

Speaking on what the commission was doing to hedge against the microeconomic headwinds, he said, “Naira devaluation did not just affect pension funds; it affected everybody, and it is a twin thing. You have inflation and you have devaluation.

“So, anybody who has money in the bank can tell you what inflation has done to his money. It reduces the value of the currency because then you need more of that currency to buy the same amount of the goods and services.”

According to Dahiru, the advantage is that pension funds are invested in so many instruments.

 “We have what we call fixed-income and variable-income instruments.

The variable income instruments are the ones whose prices cannot be determined because every time you go to the market, their prices are determined by the demands and stock. But when you invest in shares, the price you pay for those shares will go up or down depending on market forces.

“With variable income instruments, their return on investment is inflation-adjusted. Because PFAs invest in securities, in alternative investment assets such as infrastructure funds, such as private equity, such as real estate investment trusts, so already you have some inflation-hedging investments within the portfolio,” he explained.

The pension funds are one of the biggest players in Nigeria’s capital market.

They have attracted international attention, as seen during the visit of institutional investors from America in October, who asked for an expansion of regulations to increase pension fund administrators’ participation in the market.

Speaking on the floor of the Nigerian Exchange Limited, the Investment Team Lead of Prosper Africa, Cameron Khosrowshahi, during the visit, declared the openness of US institutional investors to work with Nigerian institutional investors, including pension funds to explore more avenues to invest in the Nigerian capital market.

Khowsroshahi urged the “Nigerian stakeholders to work with the pension regulator to allow pension funds inject more of their liquidity into the Nigerian equities market”.

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