PENSION FUND MANAGERS SENTIMENT REPORT

We are delighted to present the first edition of the “Pension Fund Managers Index”. This is the first of its kind report that surveys the pulse of local pension funds and gauges their investment appetite and views on the economy, various markets and investment outlook in general. Styled after the Purchasing Managers Index (PMI), it seeks to get feedback from pension fund managers in general and Chief Investment Officers (CIOs) specifically.

It hopes to serve as a barometer of their investment appetite towards various asset classes and sections of the markets locally. Here, we explore the report’s major themes and key findings.

Investment Sentiments: A Mixed Outlook

The report highlights that pension fund managers are closely monitoring the macroeconomic indicators to guide their investment decisions. Over 60% of fund managers stated that their investment levels would be dictated by these indicators, particularly inflation and interest rates. Pension fund managers have responded to the Central Bank of Nigeria’s (CBN’s) hawkish stance by increasing exposure to government securities, which now represent over 63% of total pension fund assets. Despite macroeconomic headwinds, fund managers expressed optimism about future investments. 100% of respondents reported intentions to increase their investments in the upcoming quarter, driven by growing assets under management (AUM). However, the overall sentiment towards the economy remains bearish, with more than half of the managers expecting no improvement in key economic indicators over the next quarter.

Sector-Specific Outlooks

Equity Market:

Despite a 34% growth in the equities market in the first half of 2024, fund managers exhibit a cautious stance towards equities. While the market has performed well, some managers have opted to shift to treasury bills due to concerns over future market volatility. Only 36% of managers are actively looking to increase their exposure to equities, while 28% are considering reducing their equity allocations

Fixed-Income Securities:

Pension fund managers maintain a strong preference for fixed-income securities, with 64% of managers indicating that they will increase their allocation to this asset class. Government bonds continue to dominate as a safe haven amid economic uncertainty. This trend is expected to persist as inflation cools and interest rates potentially decline later in the year.

Infrastructure:

Infrastructure investments are gaining traction, with 73% of fund managers intending to increase their allocation towards this sector. The growing pipeline of bankable infrastructure deals and government-backed projects is driving this interest, positioning infrastructure as a critical component of pension fund portfolios.

Alternatives:

An increasing appetite for alternative investments is emerging, with 64% of managers looking to expand their exposure. However, there is a call for more specialized funds to cater to the growing demand for alternative asset classes such as private equity, venture capital, and real estate.

Key Concerns and Risks

Market Volatility:

Market volatility remains a significant concern for fund managers, with only 18% expecting improvement in volatility over the next quarter. Factors like exchange rate uncertainty and the high-interest-rate environment continue to weigh on the market. A substantial 36% of respondents expect further market volatility, due to foreign exchange concerns and high borrowing costs.

Political Uncertainty:

The current political climate has added a layer of uncertainty to the investment landscape. Political protests, and industrial strikes, coupled with a cost-of-living crisis, have made fund managers more cautious about investments in the real sector. The majority expect political uncertainty to persist, potentially impacting economic recovery and investor sentiment.

To read the full report, download it here: FUND MANAGER SENTIMENT REPORT

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