Pension fund assets in Nigeria increased by N90 billion and N10 Billion for the months of July and August respectively to push the total pension assets to N8.33 trillion, an increase of 1.22% over its June 2018 asset value.
This is according to analysis of the Summary of Pension Fund Assets recently released by the National Pension Commission.
The analysis conducted by Quantitative financial Analytics indicates that there was a reallocation of funds from the previous RSA fund category, now known as Fund 2 which saw about N1.8 trillion flowing out to the newly inaugurated Fund 3 which received an almost equal amount of inflows. Because of the reallocation, RSA Fund 2 which stood at N5.5 trillion by the end of Q2, 2018 now stands at N3.7 trillion while Fund 3, with N1.96 trillion asset value is now the second largest category.
It will be recalled that on July 1, 2018, the National Pension Commission, PENCOM, began the implementation of its multi structure system.
Fund one is for young contributors based on choice. However, it does not look like many people have opted for this fund one as its asset value stood at N4.5 billion. Surprisingly, fund 3 which is meant for contributors in their pre-retirement stage and aged 50 years and older is the second largest fund by asset.
The seemingly lack of interest in the fund 1 seems to demonstrate that pension contributors are either too risk averse or are still to understand the implications of the multi fund structure. Though it is too early to judge the success of the newly introduced fund structure, if the trend of lack of interest in Fund 1 continues, the aim of the fund structure may not be realized.
Pension funds are still over weight government fixed income securities as 68% of pension fund assets are invested in FGN Bonds and Treasury bills. When investments in Corporate debt securities (4.89%) as well as State Government securities (1.85%) are added to investments in FGB Bonds and Treasury bills, it become obvious that the Nigerian bond market is being driven by pension funds.
In total, about 75% of pension fund assets are invested in fixed income securities which leave Nigerian pension funds heavily exposed to interest rate risk.
Exposure to equities remains very minimal as only 7.56% and 0.77% of pension assets are invested in Domestic and Foreign equities respectively.
Happily, not much of pension fund assets are invested in illiquid or thinly traded asset classes like Private Equity and Infrastructure funds as just 0.46% and 0.19% of total pension assets are in those asset classes.