Pension Funds Shift Focus as REIT Investments Decline by 91% in Five Years

The Pension Fund Operators Association of Nigeria (PenOp) has reported a 91% decline in the amount allocated for Real Estate Investment Trusts (REITs) investments by pension fund administrators (PFAs) over the past five years.

The findings were disclosed in an analysis of investment patterns shared on PenOp’s official Instagram page on Tuesday.

According to the Nigerian Exchange Limited (NGX), REITs are corporations or trusts that pool capital from multiple investors to purchase and manage income-generating properties or mortgage loans.

These instruments are traded on the NGX like stocks, allowing investors to buy and sell units through their brokers.

The PenOp analysis revealed that investments in REITs fell from a peak of N239.28 billion in 2020 to N20.06 billion by the end of 2024.

The lowest point during this period occurred in 2022, when investments dropped to N14.14 billion from N153.52 billion in 2021. Although there was a slight recovery to N21.04 billion in 2023, the downward trend continued into 2024.

“The gradual drop in investment in REITs is due to the dearth of REITs available in the market. However, active funds have shifted to investing in real estate through private equity funds. Unlike active funds, closed pension funds invest directly in real estate and have invested nearly N300bn in direct real estate in 2024,” PenOp said.

While investments in REITs dwindled, PFAs significantly increased their direct investments in real estate.

In 2024, direct real estate investments rose to N273.06 billion, up from N245.34 billion in 2023.

Overall, combined investments in real estate—through both REITs and direct holdings—totaled N293.12 billion in 2024, reflecting a 10.04% increase compared to N266.38 billion in 2023.

Speaking on the importance of real estate in pension fund portfolios, PenOp said “They help to hedge against long-term inflation and ensure developers have a source of long-term capital to tap from.”

Pension fund regulations prohibit active funds from directly investing in real estate. Instead, they are required to invest through REITs.

However, closed pension funds and those operating defined benefit schemes are permitted to make direct property investments under the National Pension Commission’s guidelines issued in September 2011.

The guidelines define direct real estate investment as the purchase of developed properties or financing property development to generate income for the pension fund.

The REITs currently listed on the NGX include SFS Real Estate Investment Trust, priced at N179.45 per unit; UH Real Estate Investment Trust, priced at N36.60 per unit; and UPDC Real Estate Investment Trust, with a market capitalization of N15.21 billion and units priced at N5.70 each.