New PenCom regulation could unlock N1.6 trillion for Nigerian Equities

Earlier in the month, the National Pension Commission (PenCom) released a revised regulation on the investment of pension assets, allowing Pension Fund Administrators (PFAs) to increase their allocation to equities across four RSA fund categories.

While the adjustment may appear technical at first glance, its implications for the Nigerian capital market are significant.

At its core, the revision provides PFAs with greater flexibility to deploy funds more efficiently.

In recent periods, the limited availability of qualifying alternative asset instruments constrained portfolio allocations, leading to underutilized limits and excess liquidity within the pension system.

The updated regulation addresses this imbalance by expanding the permissible equity exposure across selected RSA funds.

What Has Changed? 

• RSA Fund I equity allocation increases to 35% (from 30%)
• RSA Fund II rises to 33% (from 25%)
• RSA Fund III increases to 15% from 10%
• RSA Fund VI (Active) is revised upward to 33% from 25%

These upward revisions create additional headroom for equity investments, potentially unlocking significant liquidity into the domestic stock market.

Potential N1.6 trillion liquidity injection 

Based on our analysis of PenCom’s industry report as of December 2025, the revised limits could translate to approximately N1.6 trillion in incremental investment capacity for Nigerian equities, assuming PFAs gradually adjust allocations toward the new thresholds.

This development comes at a favorable time for the market.

The NGX All Share Index has already gained 25.3% year-to-date as of 20 February 2026, building on the exceptional performance recorded in 2025, when the market delivered returns exceeding 50%.

The rally has been largely driven by strong performance in large-cap stocks such as MTN Nigeria, Seplat Energy, and Dangote Cement, reflecting renewed investor confidence and improved earnings visibility.

Why the timing matters 

The revised regulation coincides with improving macroeconomic fundamentals. Inflationary pressures have moderated relative to prior peaks, foreign exchange conditions have stabilized compared to earlier volatility, and business activity indicators have strengthened. Together, these developments have improved investor sentiment and earnings outlook for listed corporates.

Equally important is the movement in the fixed income market.

After an extended period of elevated yields driven by monetary tightening, yields have begun to moderate.

As fixed income returns soften, equities become relatively more attractive, particularly for long-term institutional investors seeking real returns above inflation.

For pension funds, which operate with long-duration liabilities, this shift in relative attractiveness can influence portfolio rebalancing decisions.

Even a gradual movement toward the revised equity limits could provide structural demand support for the market.

Dividend expectations add further support 

• Another supportive factor is the anticipated strength of dividend payments. Many listed companies recorded improved margins in 2025, supported by pricing adjustments, operational efficiencies, and improved revenue growth in a more stable macro environment.
• As earnings improve, dividend declarations in 2026 are expected to remain robust. In a lower-yield fixed income environment, attractive dividend yields could enhance the appeal of blue-chip equities, particularly for institutional investors focused on steady income generation.

Can the market surpass last year’s performance? 

Given the combination of potential pension fund inflows, moderating fixed income yields, improving corporate earnings, and anticipated dividend strength, the Nigerian equities market appears well-positioned to potentially surpass last year’s performance.

While external risks, including global financial conditions and commodity price volatility, cannot be entirely discounted, the structural liquidity support from pension reforms provides a meaningful tailwind.

Unlike short-term speculative flows, pension capital is typically stable and long-term in nature, which could enhance market depth and reduce volatility over time.

Bottom line 

PenCom’s revised investment regulation represents more than a routine policy update. It introduces a structural catalyst that could reshape liquidity dynamics within the Nigerian equities market.

• With an estimated N1.6 trillion in potential additional allocation capacity, declining fixed income yields, and expectations of strong dividend payouts, the outlook for the market remains constructive.
• Based on current analysis, the Nigerian equities market could potentially outperform its previous year’s performance, provided macroeconomic stability is sustained.

In essence, the market is now supported not only by cyclical momentum but also by regulatory-driven structural demand, a combination that could define the trajectory of equities in 2026.

New PenCom regulation could unlock N1.6 trillion for Nigerian Equities  - Nairametrics