MODERATING ROLE OF PENSION FUND SIZE ON THE RELATIONSHIP BETWEEN FINANCIAL RISK MANAGEMENT AND PERFORMANCE OF TIER 3 (SMALL) PENSION FUNDS ADMINISTRATORS (PFAS) IN NIGERIA

Abstract

This study examines the moderating role of pension fund size on the relationship between financial risk management and the performance of Tier 3 (small) Pension Fund Administrators (PFAs) in Nigeria. Using a longitudinal research design, the study analyses data from 2012 to 2022, focusing on 19 licensed PFAs under Nigeria's Contributory Pension Scheme (CPS). The sample comprises small PFAs with assets below ₦300 billion, selected through purposive sampling to ensure data availability and reliability. Data were sourced from audited financial reports and analysed using pooled Ordinary Least Squares (OLS) regression, with diagnostic tests for multicollinearity, heteroscedasticity, and model fit. Findings reveal that small PFAs exhibit weaker financial performance (mean ROA and ROE of 5.8%) compared to larger counterparts, with higher liquidity risk (34%) and greater susceptibility to external shocks. Foreign exchange risk (FER) and capital adequacy risk (CAR) significantly enhance ROA and ROE, while fund size positively moderates these relationships, underscoring economies of scale. However, liquidity and operational risks remain critical challenges for small PFAs. The study recommends tailored strategies to strengthen risk management practices, including simplified credit risk guidelines, enhanced liquidity reserves, and incentives for capital accumulation. Policymakers are urged to promote consolidation and growth strategies to help small PFAs leverage economies of scale. This research contributes to the literature by addressing the gap in understanding how fund size moderates' financial risk-performance dynamics in small PFAs, offering practical insights for regulatory frameworks and industry practices to ensure the sustainability of Nigeria's pension system.