PFAs’ exposure to govt securities down to 70% of N13.6trn AuM

BY: CHARLES ABUEDE

Nigerian pension fund administrators’ (PFAs) exposure to government fixed income securities is beginning to shrink from what it had been in recent times as it dropped to 70 percent from the 79 percent recorded in 2021 with total net value of the assets under management hitting N13.61 trillion in January 2022.

Despite this gradual decline of PFA holdings of government riskless securities, analysts are anticipating an increased supply of these government securities into the market in 2022 in its drive to meet its funding target for the federal government.

The latest monthly report from the National Pension Commission (PenCom), the pension industry regulator, shows that total assets under management (AUM) for the regulated pension industry increased by 30 percent year on year to N13.6 trillion, as at the end of January 2022. This figure also shows an increase of one percent month on month from N13.42 trillion reported at the end of December 2021.

As observed in the PenCom report, the total registered pension accounts increased by just over 625,000 to around 9.55 million at the close of the review month.

Even though FGN debt securities accounted for the overwhelming share of pension assets at 61.3 percent, its share has gradually reduced from 71 percent as at January 2020; and when corporate and state government issuances are added up, the fixed-income exposure drops to the equivalent of 70 percent of the industry’s total value of assets under management (AUM), down from almost 79 percent in the same period a year earlier.

Further analysis of the data shows that the share of domestic equities rose to 7.1 percent from 5.7 percent over the twelve months, and pension funds’ holdings by around N365 billion or 61 percent to N960 billion. However, over this focused period, the all-share index (ASI) of the Nigerian Exchange only increased by 11.1 percent, suggesting that there was a slight shift in asset allocation in favour of equities.

Consequently, in spite of the market’s (NGX) moderate return in 2021, analysts believe that most fund managers’ (PFA’s) equities holdings also benefited from the spectacular performance delivered by a few names like Guinness Nigeria and Seplat Energy during the month of January, which achieved high double-digit returns in that period.

Notwithstanding the above, late entrants into fixed income securities benefitted from some yield pick-up in bonds towards mid-2021 before yields began to moderate into 2022.

Using fixed income analysts’ coverage of FGN bonds as a read-across; “We see that yields have dipped by over 100 basis points or 1 percent across the FGN curve this year largely because of the sizable system liquidity which has persisted,” FBNQuest fixed income experts said.

“However, we expect to see some yield retracement through the second quarter and beyond as the Debt Management Office (DMO) increases the supply of FGN paper to meet its domestic borrowing target. In our view, the DMO has its work cut out for it as it seeks to raise well over N2.6 trillion (ex-supplementary budget) to fund its domestic borrowing target,” they noted.