FGN Bonds Lead in PFAs Asset Allocation with N3.6tn

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By Eromosele Abiodun

Despite the yawning infrastructural  gap in Nigeria, the Pension Fund Administrators (PFAs) in the country have continued to allocate majority of their assets in the Federal Government of Nigeria (FGN) bonds, staking over  50.1 per cent of its assets, N3.5trillion ($12.5 billion) in the instrument.

The assets under management (AUM) of the Nigerian regulated pension industry increased by 23.7 per cent year-on-year ( y/y) in February  this year to N7.79 trillion ($25.5 billion).

Growing at a reasonable rate yet, at just 6.9 per cent of the nation’s 2017 gross domestic products (GDP), analysts believe they are running well behind many emerging markets.

“Nigeria was relatively late (2004) in introducing legislation creating a sound structure for regulated pensions. Strong and forward-looking leadership has not always been forthcoming from the regulator, so we have to view its target of 30 per cent coverage of the workforce by 2024 as ambitious, “said analysts at FBN Quest.

Analysis of the PFAs assets allocation showed that Nigerian Treasury Bills (NTBs) attracted 18.1 per cent; the local stock market got 9.4 per cent, domestic money market 8.1 per cent, others 12.8 per cent.

Further analysis revealed that the industry’s holdings of FGN paper amounted to 69.7 per cent of their AUM in February, compared with 72.3 per cent one year earlier.

The beneficiary has been domestic equities, the share of which gained 1.9 per cent over the 12-month period.

Commenting on the development, analysts at FBN Quest noted that: “The role of the PFAs in local debt markets remains pivotal. Their holdings of FGN bonds at end-February represented 45.5 per cent of the stock of the instruments at end-December.

“National Pension Commission (PenCom) latest data do not point to a surge of investment in domestic equities. The Nigerian Stock Exchange (NSE) ASI rose by 71.1 per cent in the 12 months to end-February while AUM in the asset class increased by 54.8 per cent over the same period, “they said.

The analysts however warned that the decline in yields on FGN paper since mid-2017 could lead to a change in asset allocation by PFAs.

“The share of AUM invested in equities has risen but we are not witnessing a sea-change. The generally average results of listed companies other than tier-one banks militate against such a change. We understand that conversations are taking place between the FGN and the PFAs to persuade them to invest in priority infrastructure projects through a SPV structure. Investors require attractive terms relative to those on exposure to other asset classes, “they added.

Many PFAs were impacted by the recession that hit the country in 2016, but Head Business Development, ARM Pension Managers, Abisola Onigbogi told THISDAY recently that investment in guaranteed return instruments not in variable instrument helped PFAs to survive the crushing recession that Nigeria is just getting out of.

According to him, “Just like every other aspect of the economy the PFAs were not insulated from the recession however, unlike most other sectors we were a bit sanitised, our regulators are very strict about what we invest in. over time most of our monies are in guaranteed return instruments not in variable instrument.

“Largely we were insulated from most things, we have returned positive results even during the recession and as the economy gets better we will continue to ride the crest into a better future for our investors and retirees.”