Earlier this month, the National Pension Commission (PenCom) introduced a revised regulation on pension asset investments. This update allows Pension Fund Administrators (PFAs) to increase their equity allocations across four RSA fund categories.
While the changes may seem technical, they carry significant implications for Nigeria’s capital market. At its core, the revision gives PFAs more flexibility to allocate funds efficiently.
In recent years, limited alternative investment options have constrained portfolio allocations. This led to underutilized equity limits and excess liquidity in the pension system. The updated regulation addresses this by expanding equity exposure limits for selected RSA funds.
Key Changes in Equity Allocation
- RSA Fund I: Increased to 35% (from 30%)
- RSA Fund II: Increased to 33% (from 25%)
- RSA Fund III: Increased to 15% (from 10%)
- RSA Fund VI (Active): Increased to 33% (from 25%)
These adjustments create more room for equity investments, potentially unlocking significant liquidity for the domestic stock market.
Potential N1.6 Trillion Liquidity Boost
Based on PenCom industry report (as of December 2025), these revised limits could enable up to N1.6 trillion in additional investments in Nigerian equities. This assumes PFAs gradually adjust their portfolios to align with the new thresholds.
This development comes at an opportune time. The NGX All Share Index has already gained 25.3% year-to-date (as of February 20, 2026), following an exceptional 2025 performance with returns exceeding 50%. The rally has been driven by strong large-cap stocks like MTN Nigeria, Seplat Energy, and Dangote Cement, reflecting renewed investor confidence and improved earnings visibility.
Why Timing Matters
The revised regulation aligns with improving macroeconomic conditions:
- Inflation: Pressures have eased compared to prior peaks.
- Foreign Exchange: Stability has returned after earlier volatility.
- Business Activity: Indicators show stronger performance.
These factors have boosted investor sentiment and improved earnings prospects for listed companies.
Additionally, the fixed income market is shifting. After a period of high yields due to monetary tightening, yields are now moderating. As fixed income returns soften, equities become more attractive, especially for long-term institutional investors seeking inflation-beating returns. For pension funds with long-term liabilities, this shift could drive portfolio rebalancing toward equities, even if done gradually.
Dividend Strength Adds Appeal
Another factor supporting equities is the expected strength of dividend payouts. Many listed companies improved margins in 2025 through pricing adjustments, operational efficiencies, and revenue growth in a stable macro environment. As a result, dividend declarations in 2026 are likely to remain robust. In a low-yield fixed income environment, attractive dividend yields could make blue-chip equities even more appealing to institutional investors focused on steady income.
Can the Market Outperform 2025?
With potential pension fund inflows, moderating fixed income yields, stronger corporate earnings, and robust dividend expectations, the Nigerian equities market is well-positioned to potentially surpass last year’s performance.
While external risks like global financial conditions and commodity price volatility remain, the structural liquidity support from pension reforms provides a strong tailwind. Unlike speculative short-term flows, pension capital is stable and long-term, which could enhance market depth and reduce volatility over time.
Bottom Line
PenCom revised investment regulation is more than a routine policy update—it’s a structural catalyst for the Nigerian equities market.
With an estimated N1.6 trillion in additional allocation capacity, declining fixed income yields, and strong dividend prospects, the market outlook is highly constructive. This reform could reshape liquidity dynamics, offering long-term benefits for investors and the broader economy.
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