Nigeria is to increase limits on pension funds’ investment in the stock market to half of their portfolio, from a quarter currently, according to proposals from the regulator seen by newsmen on Monday, a move that could boost its share index.
Nigeria’s pension funds were worth around $13 billion in 2010 and have been growing at a rate of 30 percent per year.
Its equity market struggled to sustain a recovery after a more than 60 percent fall in 2008, which led to a mass exodus of domestic investors, including pension funds.
Under the regulatory changes being proposed by the National Pension Commission (NPC), they will also be allowed to build a portfolio compliant with sharia or Islamic law, in a country with one of the highest Muslim populations in the world.
The central bank is drafting a regulatory framework meant to establish Nigeria as the African hub for Islamic banking, emulating the success of Malaysia in Asia.
“PFAs (Pension Fund Administrators) shall invest pension fund assets with the objectives of ensuring safety and maintenance of fair returns,” the draft document said.
It however called on fund managers to review the proposals, published on its website, the second of such review since the pension law was set up in 2004.
Since the 2008 stock market fall, regulators have been trying to lure back domestic investors to the stock market, and they hope the move to ease pension fund restrictions could provide a much needed impetus.
The main all-share index has gained just two percent this year, after a 16 percent decline last year.
Yet while domestic investors have been wary, offshore investors have been increasing their stake in Nigeria. Last year, share purchases by foreign investors rose 80 percent to 512 billion naira ($3.23 bln), despite the index poor performance.
In the last regulatory review, in 2010, the regulator allowed pension funds to invest in corporate bonds and private equity for the first time, enabling firms like Lafarge Wapco , Flour Mills and UBA to tap a more liquid debt market.