PFAs Increase Position in FGN Bonds as Pension Asset Spikes
Aisha Dahir-Umar, Pension DG

PFAs Increase Position in FGN Bonds as Pension Asset Spikes

Pension Fund Administrators (PFAs) were top active investors in the Federal Government of Nigeria (FGN) bonds instruments as pension assets inched upward to N14.4 trillion, the latest report from the regulator shows.

The National Pension Commission (PenCom) said in a report that the total assets under management (AuM) for the regulated pension fund industry rose 11.8% year on year to N14.43 trillion and 0.49% month on month between July and August 2022.

In a document posted on its website, there was a strong position in government bonds instrument in the month amidst 400 basis points increase in benchmark interest rate to 15.5%.

In its market report, Cowry Asset Management stated that the increase in the numbers shows the consistent rise in the industry’s assets over the years; however, the room still exists to onboard more contributors.

Analysts noted that federal government securities still dominate a larger chunk of the asset mix of pension fund administrators (PFAs), which accounts for more than 60 percent (63.8%) of the total asset mix. As such, there was a modest exposure to equities and other assets, according to analysts’ review.

The report indicates that money market instruments account for 14.72 percent of the total industry’s asset class holdings as heavy investments were made into fixed deposit and bank acceptance with minimal holdings in commercial papers and foreign money market instruments.

For the total federal government securities, FGN bonds saw the most holdings by fund administrators, which printed at 61.14% as they held to maturity (HTM), Cowry Asset said in a review.

This was followed by treasury bills, which had 1.24 percent holdings, and then agency bonds, Sukuk bonds, and green bonds, which had 0.1 percent, 0.96%, and 0.40 percent, respectively.

Analysts said the small holding in FGN securities by fund managers may be a result of the prohibition by the CBN on those institutions that have access to its windows from taking part in bond and T-bill auctions.

“Even though only a fraction of the total industry assets under management (of merely above 9 percent), pension funds’ holdings of corporate debt increased by about N420 billion, or 44 percent year on year, to N1.4 trillion”.

Cowry Asset said government bond yields have risen significantly this year as a result of a combination of tight market liquidity and a significantly more hawkish stance by the Central Bank of Nigeria, with a higher supply of FGN paper on the primary market also playing a role.

Meanwhile, the industry’s regulatory body revealed in its report that a total of 9.75 million scheme memberships, implying an average portfolio of about N1.5 million, or an 8 percent year-on-year rise. READ: Nigerian Pension Fund Assets Rise, PFAs Exit Treasury Bills

“Considering the continued bearish run of the local equity market in recent months, we expect to see some more yields expansion through the last quarter of the year while the debt management office continues its supply of federal government paper to the market”, analysts stated. #PFAs Increase Position in FGN Bonds as Pension Asset Spikes

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