by NIyi Jacobs
A new report on Nigeria’s pension industry has revealed a stark contrast between the steady growth in pension assets and the declining real value of those savings, calling for urgent diversification into alternative investments such as private equity.
The report, presented by Dr. Shamsuddeen Attahiru Nassarawa, CFA, FCA, at a pension forum held at Eko Hotel and Suites on June 26, 2025, warned that Nigeria’s pension funds, despite their impressive growth in nominal terms, have delivered negative annualized real returns over the last 18 years. This erosion in purchasing power, analysts say, is largely due to high inflation and an over-concentration in traditional asset classes.
Nigeria’s pension assets under management (AUM) have grown significantly, reflecting rising compliance and enrollment, but that growth has not translated into meaningful wealth preservation for retirees. “On paper, returns look healthy. But when adjusted for inflation, most pensioners are actually losing value,” Nassarawa noted.
The report showcased the performance of a representative private equity fund, which returned an annualized 74.92% in naira terms — significantly higher than the 13.73% return from traditional pension portfolios. In risk-adjusted terms, the Sharpe Ratio of private equity was 1.43, compared to 0.24 for pension funds, suggesting a much better return per unit of risk.
Perhaps most striking was the evidence presented using mean-variance optimization, a model for building efficient investment portfolios. Even a 5% allocation to private equity, within current regulatory limits, was shown to boost the portfolio’s expected return from 13.73% to 16.79%, while only marginally increasing risk from a 3.65% to 4.17% standard deviation. The Sharpe Ratio under this structure rose to 1.01, more than quadrupling the current pension fund ratio.
“This proves that even a modest reallocation toward alternatives can significantly improve outcomes for contributors without exposing them to undue risk,” said Nassarawa.
The current regulation by the National Pension Commission (PenCom) permits limited exposure to private equity, capped at 5% for Funds II and VI, and 10% for Fund I. However, uptake has been minimal due to perceived risk and limited local fund options. The report calls for a policy rethink to encourage prudent diversification that can shield pensioners from inflation and currency depreciation.
The study further highlighted that private equity returns are largely dollar-linked, providing a critical hedge in Nigeria’s volatile foreign exchange environment.
Stakeholders at the presentation urged regulators and pension fund administrators (PFAs) to expand their investment horizon beyond bonds and treasury bills. “In today’s macroeconomic climate, playing it safe could be the riskiest strategy of all,” said one attendee.
The report concludes with a recommendation to optimize pension portfolios through a balanced mix of traditional and alternative assets, while advocating for improved market infrastructure and stronger regulation of private equity vehicles to protect contributors.
With over ₦19 trillion in pension assets and rising inflation, the Nigerian pension industry faces a pivotal moment: stay the course and risk eroding future wealth — or diversify and unlock superior long-term value.
