THERE are indications that the continued rising exposure of fund managers to securities of the Federal Government in the face of an interest rate hike by the Central Bank is weighing positively on the pension industry in Nigeria.
This is evident in the latest unaudited report of the National Pension Commission (PenCom) for the pension funds industry portfolio in June 2022, which showed that pension industry’s total assets under management (AuM) rose by 0.52 per cent month-on-month (m/m) to N14.28 trillion in June 2022 from N14.19 trillion in the preceding month.
It also recorded a 12.7 per cent year-on-year (y/y) from N12.66 trillion in the same month last year.
This reported increase, according to experts, was driven by the continued rising exposure of fund managers to securities of the Federal Government in the face of an interest rate hike by the Central Bank.
Also, the total number of pension accounts increased to almost 9.8 million from 9.6 million in the month of May.
Although Nigeria’s pension sector has grown remarkably since 2004 when the Pension Reform Act was passed, analysts say there is still some ground to cover and this can be achieved with continued investor education and efforts aimed at driving a significant penetration into that space.
Meanwhile, it is worthy to note that the Nigerian pension funds, on a historical trend, have always favoured government debt as an asset class due to the scantiness of good quality investable securities available to them.
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
“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 per cent or N158 billion m/m to N8.31 trillion from N8.47 trillion in May, while their share of total AUM waned by 41.7per cent.
“But, if we include treasury bills, Sukuk bonds and other agency bonds, total FGN securities, share increased by 344 basis points (bps) to around 63.14 per cent of total AUM, up from 62.1 per cent in May,” analysts from Cowry Assets Management Limited stated in a note to investors.
They noted that their share of domestic equities fell from almost N1.1 trillion in May to N969 billion and accounts for 6.8 per cent of the total AuM in June.
Elsewhere, the PFAs exposure to state government’s debt securities, according to the report, accounted for 1.13 per cent of the total net asset value which printed at N160.96 billion.
Also, money market instruments and mutual funds’ share of the total industry assets were 15.07 per cent and 0.39 per cent while other asset classes accounted for 4.45 per cent of the total value in June 2022.
The report also revealed that there was an 18.6 per cent y/y decrease in the total treasury bills holdings by fund managers to N475.64 billion as well as waning interests seen in the mutual funds’ space by -51.8 per cent to N56.13 billion from last year’s N116.34 billion while their holdings of corporate debt securities increased 25.1 per cent y/y to 1.19 trillion.
“We believe the yields in the fixed income space will rise further in the next couple of weeks, spurring positive sentiments from investors, especially pension funds 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,” the analysts added.
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