How naira depreciation impacts pension funds

Nigeria's pension funds industry is facing challenges as the value of pension funds in dollar terms experienced a significant drop of 29 per cent to $14.3 billion in January compared to the $20.4 billion recorded in December the previous year. Oguche Agudah, the CEO of Pension Fund Operators Association of Nigeria, shed light on the factors driving this decline in a recent interview with CNBC Africa. Agudah highlighted the impact of Naira depreciation as a key driver behind the decrease in dollar terms. He emphasized the importance of viewing assets in Naira terms due to the local spending and investment context. While the Naira has seen fluctuations, efforts by the Central Bank of Nigeria to stabilize the currency have been observed. Agudah stressed the need for pension funds to explore offshore investment opportunities to hedge against devaluation and enhance diversification. He referenced global examples of pension funds allocating portions of their assets internationally and advocated for Nigeria to follow suit to mitigate risks. Currently, a significant portion of Nigeria's pension assets are invested in government securities, with the potential for increased investments in infrastructure funds and other private sector ventures. Agudah highlighted the importance of diversifying the investment portfolio and engaging with various market players to maximize returns and support economic growth. As discussions around monetary policies and investment strategies unfold, stakeholders are urged to consider the long-term stability and growth of pension funds amidst market uncertainties. The push for greater investment in infrastructure and real assets remains a focal point for pension fund managers seeking attractive returns and portfolio diversity. Agudah's insights underscore the need for a strategic approach to asset allocation and risk management to safeguard pension funds and optimize returns for contributors. The conversation also touched on the utilization of mortgage plans within the pension sector, signaling opportunities for homeownership and economic development. While the uptake remains modest, the presence of mortgage options presents a potential avenue for individuals to leverage their pension savings for housing needs. As Nigeria navigates the challenges of currency devaluation and market fluctuations, the pension industry continues to adapt its investment strategies to ensure sustainable growth and value preservation for stakeholders.