Pension assets up 20% to N11.35trn in August, but skewed in favour of FGN debt securities

ASSETS UN DER MANAGE MENT (AUM) of the regulated pension industry in Nigeria rose by 20.2 per cent year on year in August to N11.35 trillion ($29.4bn), and by 0.4 per cent from N11.31 trillion on month on month comparison with July 2020 figure.

The monthly report accessed by Business A.M. from the pension industry regulator, the National Pension Commission (PenCom), show an asset mix heavily skewed towards Nigeria’s federal government debt securities, which represented 66.3 per cent of the total.

According to the report, the PFAs’ holdings of FGN paper are principally bonds (56.3% of total AUM). Also, the headline to share, however, has been the meteoric fall in the share of treasury bills (NTBs) by 1,446 basis points year on year as a result of the crashing of yields in the fourth quarter of 2019.

The fall in holdings of the NTBs has been balanced by higher exposure to FGN bonds and local money market instruments. In turn, however, the FGN bond returns have now fallen sharply. Yields for long bonds are lower than those for the FGN’s Eurobonds of similar tenor, as well as being about half the rate of underlying headline inflation. Decision time would appear to be fast approaching for the pension fund administrators (PFAs), although the long bonds are attractive for matching purposes.

Furthermore, the local money market securities accounted for 16.60 per cent of the total N11.35 trillion (N1.88trn) of the amount for the month of August. This is majorly in investments in commercial papers and bank placements which is about 14.44 per cent and 2.16 per cent, respectively.

Also, the average value of a retirement savings account (RSA) at end-August was N963,000, compared with N959,000 in July. The latest report from PenCom also shows that just N44 million was invested in RSA fund V dedicated to the new micro pensions for the informal sector and small firms with few employees.

In contrast, comments from analysts at FBN Quest Capital Research opined that its Kenyan counterpart, the Retirement Benefits Authority puts the share of government securities at 39.4 per cent at end-2018. It also shows immovable property and listed equities at 19.7 per cent and 17.3 per cent respectively: the current Nigerian equivalents are 1.9 per cent and 4.8 per cent.

In their view on the fund assets appreciation, they posited that some managers or investors may be tempted by the dividend yields offered by a small number of listed equities. Others may have to revisit their thinking on existing products such as private equity funds. “All will be hoping for new investment alternatives approved by the regulator,” they stated.