Analysts see investors enjoying high yield from FGN bonds as pension AuM reaches N12.40trn

By Zainab Iwayemi

The total value of assets under management of the regulated Nigerian pension industry recorded a northward improvement in April 2021 reaching an all-time high of N12.4 trillion or $30.2 billion, a 17.2 per cent year on year growth and a 0.5 per cent on a month on month comparison, a recent unaudited industry data on the Nigerian pension funds industry portfolio for the period ended April 2021, made available on the National Pension Commission (PenCom) website and accessed by Business a.m. shows.

According to the PenCom report, federal government debt securities accounts for approximately 67.1 per cent or N8 trillion of the total assets under management. However, when added to the corporate and state government issuances, the amount shows a fixed-income exposure equivalent to 74.4 per cent of the industry’s total AuM, while on a comparative analysis, PenCom’s Kenyan counterpart, the Retirement Benefits Authority, shows a different structure of AuM at end-2020, with government securities accounting for a 44.7 per cent share, immovable property 18.0 per cent and listed domestic equities at 15.6 per cent of the total AuM structure.

A further breakdown of the data shows that the share of domestic and ordinary equities during the period inched 2.1 percentage points to 6.7 per cent over twelve months period with members’ holdings at about 70 per cent or the value of N831 billion and N102 billion, respectively.

Also, over the same period, the all-share index rose 73.1 per cent to show price gains in the market rather than a shift in allocation. This momentum has been lost, however, as fixed-income returns have recovered from the lows that fuelled the surge on the bourse in the fourth quarter of 2020.

On the other hand, while the corporate debt securities saw investment during the period to the tune of N794.7 billion, local money market securities – consisting of bank placements and commercial papers – were valued at N1.74 trillion. Similarly, total mutual funds amounted to N129 billion as other items, such as real estate properties and private equity funds amounted to N156 billion and N40 billion; infrastructure funds, as well as cash and other assets, rose to N67 billion and N107 billion, respectively.

Noting that holdings of FGN papers are predominantly the bonds, which represented 60.1 per cent of total Assets under Management, analysts at FBNQuest Research Capital said that investors have enjoyed a very healthy yield pick-up since the start of the year and may reasonably expect a little more of the same, especially with regards to huge deficit financing requirement of N5.60 trillion in the 2021 budget.

While the Debt Management Office (DMO) has within a space of five months raised N1.09 trillion from bond auctions this year, inclusive of non-competitive bids, it plans to raise its domestic funding target of N2.34 trillion, which is a large step compared to the N1.66 trillion it collected from auctions in 2020. However, analysts have drawn the attention of the DMO to the fact that domestic investors must be kept onside since the offshore portfolio community has been hit hard by the external payments pipeline.

A look into the budget, another N2.34 trillion from external sources is already in the pipeline for the debt management office with an assumed exchange rate of N379 per dollar to bring the total external borrowings to $6.18 billion for which penultimate week, President Muhammadu Buhari sought for a go-ahead from the National Assembly.

Meanwhile, the total (RSAs) as at the end of April amounted to 9,328,340, while just N118 million was invested in the newest RSA fund V created for micro pensions for the self-employed and SMEs, having been operational since January 2020.