Nigeria’s RSA Pension funds posted a median gain of 3.76% during the first quarter of 2018, according to financial analysis firm, Quantitative Financial Analytics. Despite falling yields, this performance was better than what it was in the corresponding period of last year when the median return was 2.67%.
Though Q1 2018 looks better than Q1 2017, the annualized median return for 2018 (16%) is much lower than the YTD return of 23% recorded in 2017. This is quite understandable given the trend in yields, and the fact that over 80% of pension fund assets are allocated to bonds and fixed income instruments, which are the instruments mostly affected by the current trend in the yield curve. The 3.76% median return for the quarter fell within a wide range of individual pension fund returns of between 4.89% and 2.82%.
Impressive Gains Across all Funds
All the pension funds being monitored and analyzed by Quantitative Financial Analytics made gains in Q1 2018. The greatest performer in the RSA category is Arm RSA Pension fund which ended the quarter with 4.89% return, followed by Stanbic IBTC RSA Pension fund’s 4.8% representing annualized returns of 21% and 20.6% respectively.
APT RSA fund, which led the performance league for most of last year, seems to be losing its Midas touch, reminding investors that past performance does not guarantee future performance. The fund, APT RSA Fund, managed to take the fifth position in the Q1 2018 performance table with a return of 4.05%.
Retiree funds followed the performance pattern of RSA funds, although the retiree funds performed slightly better. The median performance return for retiree funds for Q1 2018 is 3.78% or 16% on an annualized basis. Stanbic IBTC took the lead among retiree funds with a Q1 return of 5.15%, followed by Crusader Pension fund’s 4.98% return and AXA Pension fund’s 4.3%. The performance ranged from 3% to 5.15%.
Global Pension performance
A global look at pension fund performances indicates that Nigerian pension fund managers did a great job in Q1 2018. In Canada, for example, pension funds posted a median loss of 0.7% while UK pension funds recorded a loss of 3.8% in the first quarter of 2018, the first time since 2015, according to data from Morneau Shepell and Moneyfacts respectively.
Pension funds in Nigeria continue to face some investment challenges arising from regulations that forbid them from investing sizably in equities and alternatives. These challenges may be exacerbated by the falling trends in the yield curve and the inability of funds to find high yielding bonds to invest in even as cash flows from maturities are harvested.
It may be time for the government to revisit the pension act of 2014, with a view to unfettering the pension funds’ ability to diversify by increasing the allowable allocation to equities and alternatives like infrastructures.