PFAs Dump T-Bills, Mutual Funds as Pension Assets Rise to N14.28trn

PFAs Dump T-Bills, Mutual Funds as Pension Assets Rise to N14.28trn

Pension fund administrators (PFAs) have noted to reduce their interest in treasury bills with a large drop in mutual funds holdings as pension assets spiked to N14.28 trillion in June, according to a regulatory report.

Two consecutive increases in Nigeria’s benchmark interest rate in less than three months is driving yield repricing in the fixed income market, and more pension fund managers are taking positions in the space.

Though with low holdings, the Treasury bills market has seen an upward yield repricing as the spot rate on 374-day bills hit 7% at the Central Bank of Nigeria’s primary market auction.

In the bond market, the average yield on Federal Government bond instruments jumped above 12% amidst Nigeria’s rising inflation rate. The inflation rate printed at 18.60% but analysts see further pressures on price level due to uncertainties in the macroeconomic environment.

Weak exchange rates and galloping inflation have direct impacts on Pension managers’ returns, which has recently necessitated portfolio reshuffling while some operators were seen positioning in funding Nigerian banks’ balance sheets to meet targets.

In a market note, Cowry Asset Limited however maintains that despite surging asset under management in the industry, saying there is some miles to cover. In its latest report on the industry performance, National Pension Commission said pension assets expanded to N14.19 trillion in June.

This represents 0.52% above the industry’s assets position in the month of May 2022.  Year-on-year data shows that the pension industry’s assets under management (AuM) surged 12.7% from N12.66 trillion in the comparable period in 2021. 

This reported increase was driven by the continued rising exposure of fund managers to securities of the federal government in the face of interest rate hikes by the central bank, analysts at Cowry Asset said in a note.

It was noted that the total number of pension accounts increased to almost 9.8 million from 9.6 million in the month of May, according to the pension funds industry portfolio for June 2022.

In the review, Cowry Asset said although Nigeria’s pension sector has grown remarkably since 2004 when the Pension Reform Act was passed, there is still some ground to cover and this can be achieved with continuing investor education and efforts aimed at driving a significant penetration into the space.

The firm said the Nigerian pension funds, on a historical trend, have always favoured government debt as an asset class due to the scantiness of good quality investible securities available to them. READ: Nigerian Pension Fund Assets Rise, PFAs Exit Treasury Bills

Other associated whys and wherefores include the relative lack of depth of the equities market, which at the moment, is in the land of correction, and the need for portfolio safety considerations, it added.

“Our analysis of the report pointed out that FGN bonds were the primary driver of the month-on-month gain, though, their value decreased by almost 1.90% or N158 billion month on month to N8.31 trillion from N8.47 trillion in May, while their share of total AUM waned by 41.7%.

“But, if we include treasury bills, Sukuk bonds and other agency bonds, total FGN securities share increased by 344bps to around 63.14% of total AUM, up from 62.1% in May”. However, their share of domestic equities fell from almost N1.1 trillion in May to N969 billion and accounts for 6.8% of the total AuM in June.

Elsewhere, the report noted that the PFAs exposure to state government’s debt securities accounted for 1.13% of the total net asset value which printed at N160.96 billion. The report indicates that money market instruments and mutual funds’ share of the total industry assets were 15.07% and 0.39% while other asset classes accounted for 4.45% of the total value in June 2022.

Analysts stated that there was an 18.6% decrease on yearly basis in the total treasury bills holdings by fund managers to N475.64 billion as well as waning interests seen in the mutual funds’ space.

Fund managers’ interest in mutual funds declined by 51.8% to N56.13 billion from last year’s N116.34 billion while their holdings of corporate debt securities increased 25.1% to 1.19 trillion in the same period.

“We believe the yields in the fixed income space will rise further in the next couple of weeks, spurring positive sentiments from investors”, Cowry Asset said in a review.

The firm expects this to propel pension fund administrators into more buying for a much longer period following the expectations of an elevated supply of government securities as part of FG’s plan to fund its fiscal deficit.

“Also, we see more opportunity for a significant level of penetration into the space to help drive Nigeria’s pension savings penetration rate above the current rate”, Cowry Asset said. #PFAs Dump T-Bills, Mutual Funds as Pension Assets Rise to N14.28trn

Pic source: Pension Nigeria