Data from the National Pension Commission of Nigeria, PenCom, shows that the asset value of pension funds in Nigeria witnessed a growth of 3.27% in the second quarter of 2019. The total asset value of Nigeria’s pension fund administrators, which stood at N9.03 trillion as at the end of the first quarter, increased to N9.325 trillion by the end of June 2019, according to data from PenCom.
Analysis of the said data carried out by analysts at Quantitative Financial Analytics indicates that pension fund administrators together had about N578 billion in contributions and N283 billion in redemptions, leaving it with a net increase of about N296 billion to bring its Q2 total asset value to N9.325 trillion.
Asset Reallocation
The same analysis shows that there might have been some sort of divestment or asset rebalancing that took place among the various asset classes that the administrators invest in. The asset class that got affected most, on the negative side, is investment in foreign money market securities which fell by a whopping 92% from its Q1 balance of N22.5 billion to N1.8 billion by June ending.
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Pension fund managers tend to be falling out of love with mutual funds as their investments in open/closed end funds fell by 13%, from N10.6 billion (March 2019) to N9.3 billion as at the end of Q2. Other asset classes that suffered allocation shrinkage include:
FGN Bonds, which fell by 0.45%, or about N20 billion,
Infrastructure funds, by 0.77%,
Agency Bonds, 1.16%,
Private Equity funds, 2.48%,
Sukuk bonds, 8.51%,
Domestic ordinary shares, 9.8%, and
State Government bonds, 10.19%
The rebalancing or asset reallocation notwithstanding, the overall asset allocation structure of the industry still remains intact with 47.6% of assets in FGN Bonds (N4.4 trillion), and 20.8% or N1.94 trillion in Treasury Bills.
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Cash Pile Up
Our analysis indicates that most of the realizations from the “divested” or shrunk asset classes are being kept in cash. Cash and other assets, as an asset class, grew by 751% in Q2, from N25 billion in Q1 to N214 billion, in Q2. This is the highest cash position by pension fund administrators since Quantitative Financial Analytics began monitoring and analyzing pension assets in Nigeria, over 5 years ago.
A deeper analysis indicates that the stashing away of cash occurred across almost all pension fund categories. While CPFAs increased their cash holding by 491%, from N661 million to N3.9 billion, Retirement Savings Account, RSA Fund 2, increased its cash balance by 1598% from N7.3 billion to N124.5 billion. In the same way, Retirement Savings Account, RSA Fund 3, saw its cash balance increased by 3686% from N1.8 billion to N70 billion, but Retiree Savings Account, Fund 4, had an increased cash balance of 225% from N4.2 billion to N13.8 billion.
It does appear, therefore, that all the pension fund categories, except Fund 1, stockpiled cash in the second quarter of the year. The stockpiling of cash could be in anticipation of withdrawals by retirees and other stakeholders. It could as well be a strategy to wait for profitable investment opportunities that may crop up, as they usually do, every now and then.
Another reason for the perceived cash accumulation maybe because of failing yield that is being witnessed in the Nigerian economy which is decreasing the allure of bonds and treasury bills. Whatever the reason for accumulating cash by the pension fund managers, it does look like they are beginning to demonstrate that “cash is king.”
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