Pension Assets Expand to N12.40 Trillion as PFAs Bet Big on Banks
Aisha Dahir-Umar, Director-General, National Pension Commission

Pension Assets Expand to N12.40 Trillion as PFAs Bet Big on Banks

Registering a 0.41% increase in April, pension assets expanded to N12.39 trillion from N12.34 trillion in March as Pension Fund Administrators (PFAs) bet big on money market instruments, a new report from the National Pension Commission (Pencom) shows.

According to the report, a significant chunk of the total pension fund assets was invested in Federal Government of Nigeria (FGN) debt Securities in line with statutory provision just as investment in banks fixed deposits, open market operations (OMO) rallied.

Pension Commission report showed that government securities share of the total assets moderated to 67.15% or N8.32 trillion in the month under review, from a 68.96% (or N8.51 trillion) recorded in the previous month.

Analysts at Cowry Asset in a report attribute the moderation to pension managers’ decision to wait on the sidelines to see where the rising interest rates in the money and bond markets would halt before investing more funds.

Pension Assets Expand to N12.40 Trillion as PFAs Bet Big on Banks
Aisha Dahir-Umar, Director-General, National Pension Commission

Hence, the firm said the money managers invested more funds in relatively high corporate debt securities and placements with deposit money banks.

The investment management company’s analysts noted that interest rates moved northward in the first four months of 2021 despite Central Bank’s (CBN) desire to maintain a dovish monetary policy plan throughout the year 2021.

The increase in rate was amid the apex bank’s struggle with the depreciating Naira against other foreign currencies and inflationary pressure.

Cowry Asset told clients in an email that, “As Pension Fund Administrators (PFAs) slowed down investment in FGN securities, we saw investment preference drift towards Local Money Market Securities”

In the month, total funds invested in the money market expanded month on month by 3.58% to N1.74 trillion in April 2021. This lifted the money market investment commitment of the total assets to 14.04%, from N1.68 trillion in March 2021 or 13.57% of total assets.

For the month, the total sum invested fund in corporate debt securities as a percentage of total pension fund assets stood at 6.41% or N0.79 trillion in April 2021 from 5.03% or N0.62 trillion in March 2021.

However, funds invested in Real Estate Properties as a fraction of the total pension fund assets fell marginally to 1.26% (or N0.16 trillion) from 1.27% (or N0.17 trillion) in the period.

Similarly, Cowry Asset analysts said they saw Cash and Other Assets which constituted 0.87% (or N107.45 billion) of the total pension fund assets in April 2021 build-up from 0.62% (or N76.01 billion) in March 2021.

Further breakdown of the N8.32 trillion FGN Securities revealed that investment in FGN Bonds gulped N7.45 trillion in April 2021, falling from N7.67 trillion in March 2021.

Also, investment in Treasury Bills plunged to N0.69 trillion in April 2021, from N0.72 trillion in March 2021. Investments in Sukuk was relatively low as its share of allocated pension assets dropped to N79.81 billion from N85.07 billion.

On the flip side, investment in local money market securities showed that more pension fund assets were invested in Banks (which include Open Market Operations, OMO, and DMBs fixed deposits) than in commercial papers.

Funds invested in Banks, which accounted for 94.25% of investment in the local money market, rose to N1.64 trillion in April 2021 from N1.58 trillion in March 2021 while investment in commercial papers, constituting 5.56% of investment in the asset class, barely increased to N96.52 billion from N91.77 billion.

Also, analysts saw investments in Green Bonds expanded to N79.81 billion from N12.88 billion.

Pension fund assets invested in the domestic equities market declined to N830 billion in April 2021 from N841 billion in March 2021.

This decreased the weight of total pension funds in the local equities market to 6.69% from 6.82% as “patronage” received from “RSA FUND II” and “RSA FUND III” dropped.

Figures show that total invested funds in the respective funds moderated to N564.39 billion and N121.31 billion, from N566.78 billion and N122.88 billion respectively in April 2021.

“The pension fund managers were forced to stay on the sidelines given the rising yields which amounted to a capital loss for the old positions in their portfolios thus, impacting their performance negatively.

“However, with the recent reversal in the upward trend in yields, we expect the PFAs to lock-in more investment in FGN bonds and T-bills with the aim of disposing them at lower yield in order to book capital gain and return higher value to pensioners”, Cowry Asset said.

Pension Assets Expand to N12.40 Trillion as PFAs Bet Big on Banks