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Funds Management

This is how much Federal Government borrowed from Pension Funds in 2019

A few weeks ago, many news media organizations published articles on the plan by FGN to borrow a whopping N2 trillion from the pension funds.

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You are working for Nigeria, not for personal interests, Buhari warns MDAs, This is how much the Federal Government borrowed from Pension Funds in 2019, Increased productivity and higher employment rate required for inclusive growth - IFC , Of visions, plan and budget,FG to review petrol price in April, President Buhari holds National Security Council Meeting with IGP, Defence Minister, VP, and others, President Buhari issues stern warning to hoodlums in his state of the Nation address to Nigerians

In a not too distant past, many news media organizations published articles on the plan by the Federal Government of Nigeria to borrow a whopping N2 trillion from the pension funds.

The need for borrowing, according to the articles, is to finance infrastructural developments in Nigeria. While some saw it as a step in the right direction, many others, like the Nigeria Employers’ Consultative Association, NECA, saw it as “a threat to the Contributory Pension Scheme.”

According to NECA, “It is unthinkable for Government to borrow from the Pension Fund when the citizens have not felt the impact of the mounting debt of Government at all levels.

“What is paramount to contributors, and other stakeholders alike, is the safety of the Fund, which, unfortunately, Government cannot guarantee. The action of Government has the potential to threaten the Scheme and erode Contributors’ confidence.”

NECA urges FG to expand tax net, Unemployment to hit 33.5% in 2020, NECA warns, NECA seeks data of unemployed Nigerians to effect FG’s stipends payment  

Mr. Timothy Olawale, DG, NECA

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Though the discontent about the plan to borrow from the pension funds is not out of place, it comes at a time when Federal Government borrowing from pension funds is not new.

The Federal Government of Nigeria, directly or indirectly, has been borrowing from pension funds. When pension funds buy Federal Government-issued bonds, the pension funds, are by implications, lending money to the bond issuer, which happens to be the Federal Government.

What is a bond?

A bond is a loan contract issued by the bond issuer (the borrower) to the bond purchaser (the lender) promising to return the money at the bond’s maturity and promising to pay interim interests on the borrowed money.

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Given the shortage of investible financial instruments in Nigeria and the regulatory impediments that compel pension funds to invest in liquid and less risky financial instruments, it is almost a sine qua non, or self-evident, that the pension funds in Nigeria will invest in Federal Government-issued bonds.

In the first place, such investments are almost risk-free given that the FGN bonds have the backing of the Federal Government of Nigeria and the fact that such bonds offer interest rates that are scarcely obtainable elsewhere.

How much was borrowed in 2019

The Nigerian Pension Fund asset is worth N10 trillion, according to the December 2019 edition of Pension Fund Asset Summary report released by the National Pension Commission, PenCom. Out of that N10 trillion, about N7 trillion is invested in Federal Government-issued securities, comprising N5.3 trillion in FGN Bonds and N1.9 trillion in FGN Treasury Bills.

In 2019 alone, pension funds lent to the Federal Government, by way of investment in FGN issued financial instruments, amounted to about N1.6 trillion, with N1.04 trillion going to FGN bonds while N0.62 trillion went to Treasury Bills.

In fairness to those frowning at the increased “borrowing” by the Federal Government from pension funds, compared to 2018, Federal Government borrowing from pension funds increased by about tN200 billion.

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[READ MORE: Infrastructure: Tapping into pension fund – a step in the right direction?)

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Judicious use of funds

There is hardly any government that does not engage in borrowing to finance its developmental initiatives unless you are in an Idi Amin type of government where money is supposed to be printed with ease.

By and large, it is the economy and the people that suffer from such fiscal profligacy by way of inflation and other economic woes. The US government is neck-deep in debt even as the Americans are, as a people, yet from time to time, the US congress raises the debt ceiling to keep the government afloat.

Therefore, borrowing is not all that bad, especially domestic borrowing where the interest rate gets paid and channelled back to the economy with its multiplier effect. What is bad about borrowing and that is what I would like such organizations like NECA to hammer on, is the judicious use of the borrowed money.

Nigeria is in need of infrastructural developments that can be of great help towards economic development. Many Nigerian roads are impassable, the traffic deadlocks that hamper movement calls for alternative modes of transportation, like the railroad system which is almost non-existent in Nigeria.

Electricity supply, a must-have for economic development, is in limited in Nigeria, calling for attention. Writing about the developmental need of Nigeria is a topic that will cover pages, not the topic of this piece. Suffice it to say, however, that in as much as the Federal Government borrows from pension funds, they should invest such money judiciously, derive the desired results and payback as at when contracted and agreed.

Pension plan participation among Nigerians increases

Lack of investment opportunities

Even the pension fund managers will be glad that the Federal Government is in a position to create investment opportunities for them because, as noted already, there are little or no alternatives open to them to invest the contributions being made by the Nigerian workers.

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The equity market has been anything but stellar, the international market is a no-go area for the pension funds due to the regulations governing pension fund investments in Nigeria, and corporate bonds are almost nonexistent in Nigeria.

At the current low-interest-rate in Nigeria, which is in the middle single-digit, at best, I wonder how the pension fund managers will be able to make out any positive performance in 2020. I will let you know how they perform when we get there. Stay tuned.

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Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

3 Comments

3 Comments

  1. Chukwuemeka

    February 17, 2020 at 8:22 am

    Thank you for this analysis, my question is why can’t we also borrow from our own money to fund personal project. Case study I have huge amount of Funds in my pension account but can’t access it and I’m still far from retirement. I try to balance it , why Government can come borrow my money but I can’t because I’m still working. My submission is a review where the contributor can access his/her funds while still working and alive. Regards.

  2. E.S Olorunaiye

    February 18, 2020 at 6:06 am

    No one should borrow from it becauseasy that will defeat the purpose of setting the program up in the first place.

  3. Iguan

    February 19, 2020 at 7:49 am

    Thanks for the analysis. Yes governments across the world borrow to finance infrastructure projects, the US government a key example. However the US government not only ensures judicious use of funds borrowed, it also ensures that such funds go into projects for which “Cost Recovery” is key to their conception and implementation. That is the Achilles heel of government borrowing to finance infrastructure projects in Nigeria. Are our public institutions strong enough to ensure cost recovery on infrastructure projects? Do we have governance intelligence positive enough to ensure public project cost recovery? Take a cue from the gate of the the success of the effort to recover cost on the Lagos – Epe Express Way project and the current experience of the Abuja -Kaduna rail project where yours have take over the ticketing system. For me, workers life savings must be lent only into projects with sound and resilient COST RECOVERY mechanisms, not just judicious use of the funds.

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Funds Management

PenCom okays N2.58billion for relatives of 591 deceased workers in three months

PenCom has released N2.58billion for payment of pension benefits of deceased workers.

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Pencom, pension, Nigeria’s Pension Asset increased by N228 billion in October, PFAs increase investment in infrastructure to N40.52 billion   

The National Pension Commission  (PenCom) has released N2.58billion for payment of pension benefits of 591 deceased workers under the Contributory Pension Scheme in the second quarter 2020.

This was disclosed in the commission’s second-quarter 2020 report.

READ: PenCom should pay 50% of workers’ pension at retirement – TUC

According to the report, the beneficiaries included 288 from the Federal Government sector, 135 from State Government sector and 168 from the private sector, making a total of 591 relatives.

It read, “The commission approved the payment of N2.58bn as death benefits to the beneficiaries of the 591 deceased employees during the quarter under review.”

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READ: PenCom recovers N17.51billion from defaulting employers, imposes penalties

PenCom also said that during the quarter under review, the Pension Fund Administrators recaptured 56,990 Retirement Savings Account holders and uploaded their data on the Enhanced Contributory Registration System.

It stated that the Enhanced Contributor Registration System, which was deployed in June 2019, had provided a platform for addressing various issues identified with the Contributor Registration System.

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READ: How foreign exchange risks and others affect the Nigerian pension industry 

It said the PFAs under the assistance of Pension Operators Association had commenced the implementation of a shared service approach in order to speed up the data recapture exercise.

The commission said it generated a total number of 190 employer codes in the period under review using the ECRS.

READ: FUGAZ Banks suffer N1.9 trillion in CRR Debits in Q2

Over 92% of employer codes generated were for private sector companies, including about seven per cent for small businesses, it stated.

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Funds Management

Best performing Mutual Funds in September 

Nairametrics reviews the best Mutual Funds in August, judging by their performance.

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Best Mutual Funds in Nigeria

Mutual Funds are professionally managed investment schemes that are controlled by designated Asset Management Companies (AMC). These Funds allow investors the opportunity to invest in stocks, bonds, and securities. They are particularly good for passive investors.

According to data from the Security and Exchange Commission (SEC), Nigeria currently has about 112 Mutual Funds as of October 2nd, 2020. These Mutual Funds cut across several Fund Types. Here is a breakdown of the Fund Types available for investors according to SEC.

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These are the top 5 performing funds. We also included profiles of the Funds as described on their websites. To determine the best performing Funds in the month of September, we looked at the Fund Prices as of August 2020 and compared to the fund prices as of 2nd October, as released by the Securities and Exchange Commission (SEC).


Vantage Balanced Fund – Investment One Funds Management Limited

The Vantage Balanced Fund (VBF), formerly known as Nigerian International Growth Fund is a balanced Mutual Fund, was created to maximize long-term capital growth and maintain regular income distribution.

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The Fund is invested in Equities, Fixed Income and Money Market Instruments, and Real Estate investments. The primary objective of the Fund is long-term capital appreciation, which is achieved by investing not more than 70% of the Fund’s assets in the equities of blue-chip companies listed on the Nigerian Stock Exchange.

August 28th 

Fund Price – N2.17

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October 2nd

Fund Price – N2.41

Return – 11.06%

Ranking – First

 

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Commentary: VBF is a Mixed Fund by Investment One Funds Management Limited. It is the best performing fund in the month of September, growing by 11.06%. The net asset value stood at N1.71 billion as of 2nd October.

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Anchoria Equity Fund – Anchoria Asset Management Limited

The Anchoria Equity Fund is an open-ended fund. It is a collective investment scheme, which seeks to invest primarily in quoted equities (minimum of 75%) and fixed income securities (maximum of 25%). The Fund does not invest in unquoted equity securities. The Fund employs an asset mix strategy with the aim of achieving consistent growth, by seeking significant exposure to a diversified pool of investment-grade equities and fixed income securities.

In order to ensure sound investment selection, portfolio, and risk management practices, the Fund adopts a portfolio strategy that largely depends on fundamental and technical analysis in order to properly assess the inherent risks within the context of the Fund profile. Accordingly, the Fund holds long term quoted equity positions with strong fundamentals underpinned by good economic themes, that are attractively priced relative to their true value and prospects.

August 28th 

Fund Price – N99.33

October 2nd 

Fund Price – N107.87

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Return – 8.60%

Ranking – Second

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Commentary: This is an Equity Based Fund by Anchoria Asset Management Limited. For a fund that is predominantly focused on equities, this is a pretty much impressive performance by all standards. It grew by 8.60% in the month of September. The net asset value stood at N313.78 million as of 2nd October.


Paramount Equity Fund – Chapel Hill Denham Mgt. Limited

The Paramount Equity Fund is Nigeria’s oldest mutual fund which invests in a broad range of high-quality equities and fixed income securities. The Fund seeks to provide an investment vehicle that enables unitholders to achieve consistent capital appreciation and some income over the long term. The Fund is suitable for investors who seek high capital growth and have a high-risk appetite. Investors are also expected to have medium to long term investment horizon.

August 28th 

Fund Price – N11.54

October 2nd 

Fund Price – N12.52

Return – 8.49%

Ranking – Third

Commentary: This is an Equity Based Fund by Chapel Hill Denham Management Limited. The Fund grew by 8.49% in the month of September. The performance is impressive considering that it is predominantly focused on equities. The net asset value stood at N425.28 million as of 2nd October.  


VI ETF – Vetiva Fund Management Limited

The Vetiva Industrial ETF “VETIND ETF” is an open-ended Exchange Traded Fund managed by Vetiva Fund Managers Limited. The VETIND ETF is designed to track the performance of the constituent companies of the NSE Industrial Index and replicate the price and yield performance of the Index.
The NSE Industrial Index comprises of the top 10 companies in the Industrial sector listed on the Nigerian Stock Exchange (NSE), in terms of market capitalization and liquidity and is a price index weighted by adjusted market capitalization.

August 28th 

Fund Price – N11.19

October 2nd 

Fund Price – N12.00

Return – 7.24%

Ranking – Fourth

Commentary: The VI ETF by Vetiva Fund Management is the best performing Exchange Traded Fund in the month of September. It grew by 7.24% in the review month. The net asset value stood at N126.32 million as of 2nd October. 


VCG ETF – Vetiva Fund Managers

The Vetiva Consumer ETF “VETGOODS ETF” (launched in 2015), is an open-ended Exchange Traded Fund managed by Vetiva Fund Managers Limited. The VETGOODS ETF is designed to track the performance of the constituent companies of the NSE Consumer Goods Index and to replicate the price and yield performance of the Index.

The NSE Consumer Goods comprises the top 15 companies in the Food/Beverages and Tobacco sector listed on the Nigerian Stock Exchange (NSE), in terms of market capitalization and liquidity, and is a price Index weighted by adjusted market capitalization.

August 28th 

Fund Price – N4.27

October 2nd 

Fund Price – N4.57

Return – 7.03%

Ranking – Fifth

Commentary: This is another of Vetiva’s products, and it is one of the best Exchange Traded Funds based on September performance, growing by 7.03%. VCG EFT Funds are a great source of investment, and it is not surprising to see another in the top 5 rankings. The net asset value stood at N117.36 million as of 2nd October. 


Bubbling Under: The following Funds make up the rest of the top 10 on our list in descending order.

6.VG 30 ETF – Vetiva Fund Managers Limited (Exchange Traded Funds)

Return – 6.64%.

7. ACAP Canary Growth Fund – Alternative Cap. Partners Limited (Mixed Funds)

Return – 6.22%.

8.VETBANK ETF – Vetiva Fund Managers Limited (Exchange Traded Funds)

Return – 5.80%.

9. AIICO Balanced Fund – AIICO Capital Ltd (Mixed Funds)

Return – 5.75%.

10. Frontier Fund – SCM Capital Limited (Equity Based Funds)

Return – 5.34%.


NB: The figures are based on SEC weekly performance report 

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Funds Management

Depositors of Post Service Homes Savings and Loans Limited soon to be paid – NDIC

Depositors of Post Service Homes Savings and Loans Limited currently in liquidation will soon be paid their claims.

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NDIC

The Nigeria Deposit Insurance Corporation (NDIC), the official Liquidator of the defunct Post Service Homes Savings and Loans Limited (in-Liquidation) is in the process of paying insured sums to the depositors of the closed bank.

As from Monday, 5th October 2020, all depositors of the bank are requested to visit any branch of the defunct bank, for verification of their claims with the NDIC officials.

READ: NDIC set to pay insured depositors of liquidated Femaz Microfinance Bank

NDIC further directed the affected Depositors to present their cheque books, passbooks, and any other proof of account ownership, together with any valid means of identification; and alternate account as part of the verification exercise, before the insured amount can be paid to them.

All eligible depositors could also contact the representatives of the Director, Claims Resolution Department in any of the underlisted NDIC Zonal Offices nearest to them, to file their claims or seek further clarifications as may be deemed necessary.

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READ: CBN says Nigerian Youth Investment Fund is coming soon

NDIC Zonal offices and phone numbers:

S/N OFFICE ADDRESS TELEPHONE
1 Lagos Office NDIC NECOM House 10th Floor, 15 Marina, Lagos. 08166569995; 09072412332
2 Enugu 10, Our Lord’s Street Independence Layout, Enugu. 042-290898
3 Benin 28A/28B Benoni Hospital Road, Off Airport Road, GRA Benin City, Edo State 08150999577; 08150999588; 08150999599; 08150999600; 08150999535
4 Kano Plot 458 Muhammad Muhammad Street, Off Maiduguri Road, Hotoro GRA, Kano. 08097756130; 09092748222
5 Ilorin No 12A Sulu Gambari Road Ilorin. 08023123185
6 Bauchi Plot No 3 Bank Road, P.M.B 0207, Bauchi. 09-4601505
7 Sokoto No 2 Gusau Road, Opp. NNPC Mega Station, Sokoto. 08033155162
8 Yola No 6 Numan Road P.M.B. 2227, Jimeta Yola, Adamawa State. 08067910599; 08068418069; 08067923383; 09-4601515 09-4601516
9 Port Harcourt No 104 Woji Road, Off Olu Obasanjo Road, GRA, Port Harcourt 09090726737; 09029150752
10 Head Office Abuja Head, Bank Examination Unit (BEU) Abuja Plot 447/448 Constitution Avenue, Central Business District, Abuja. 09-4601260; 09-4601261

 

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