PenCom’s AuM data signals investment shift favouring corporate debt, equities

By Charles Abuede

Latest data from the National Pension Commission (PenCom), the pension industry regulator, showed that total assets under management (AuM) of the regulated pension industry increased by 20.3 per cent year-on-year to N12.3 trillion, about $30 billion at the end-December, from N12.29 trillion, or $31.3 billion as of the close of November 2020, and were flat on a month on month comparison.

A breakdown of the data by research analysts at FBNQuest Capital revealed that the asset mix remains heavily concentrated in FGN securities and accounts for about 66.2 per cent of the total as seen in the prior month.

In comparison, however, the Retirement Benefits Authority, which is the National Pension Commission’s counterpart in Kenya, shows total assets under management (AUM) of KES1.32 trillion or $12.4 billion as of June 2020. This means that there was sizeable exposure to immovable property at 18.6 per cent and listed equities at 14.2 per cent together with the largest share in government securities at 44 per cent.

However, the Nigerian corporate debt market has in recent months grown from a small base with some high-profile new issues as the total holdings rose by 47.4 per cent year-on-year to N836 billion in December 2020 from the N687 billion in November. Nevertheless, fund managers in Nigeria will have their reasons for paying limited attention to assets such as real estate, private equity and infrastructure funds.

A closer look into the data from the pension industry regulatory body for December 2020 highlighted that the holdings of Nigeria’s federal government’s paper are predominantly the bonds, which represented 55.6 per cent of total asset under management. Meanwhile, over 12 months the share of Nigerian Treasury Bills has collapsed from 18.4 per cent to 5.1 per cent as the returns have tanked. Though, the initial trigger was the central bank’s circular of October 2019 that excluded domestic non-bank players such as the PFAs in Nigeria from the market in its OMO bills.

Also, the yields on the FGN bonds have risen by about four percentage points in mid-curve since the start of the year and they are still well underwater when we allow for headline inflation running at over 16 per cent year on year.

The share of domestic equities rose from 5.4 per cent to 7.0 per cent over the twelve months as against the 6.4 per cent recorded in November, and members’ holdings by 55.2 per cent to N858 billion as against the 47.6 per cent to N791 billion in the previous month. Also, over the period the all-share index increased by 50 per cent from just 29.8 per cent, which offers some limited evidence for the theory that the surge on the stock market in the final three months of 2020 was driven by changes in asset allocation by domestic investors.

Furthermore, it should be remembered that retail players account for more than 40 per cent of domestic investor transactions on the NSE while domestic institutions other than the PFAs may well have also made similar shifts in their asset allocation.

On a month on month comparison, there existed a N10 million difference from N71 million in November to the N81 million that was invested at the end-December in the newest RSA fund V, which has been created for micro pensions. Thus, the fund, which has been in operation since January ’20, could become a game-changer if the industry finds the best marketing strategy, said FBNQuest Capital.   However, the average value of a retirement savings account (RSA) at the end-December was N1.02 million, unchanged from the previous month and compared with N963,000 three months earlier.