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.
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.”
Mr. Timothy Olawale, DG, NECA
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.
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.
[READ MORE: Infrastructure: Tapping into pension fund – a step in the right direction?)
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.
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.
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.
Funds Management
Nigeria’s Best performing Mutual Funds in Q1 2021
The Net Asset Value of the listed Nigerian Mutual Funds dipped by 4.01% in Q1 2021
Mutual Funds in Nigeria recorded a bearish performance in the first quarter of 2021 as only 25 funds posted positive growth in the review month against 59 declines while 34 funds remained flat in March.
Mutual funds have been considered as a good alternative investment opportunity, particularly for retail investors because it gives them access to diversified and professionally managed portfolios at a low price.
However, data obtained from the Security and Exchange Commission revealed that on average, the 118 listed funds as of 31st March 2021, dipped by 1.91%, having recorded a similar decline in the month of February.
- Also, the net asset value declined by 4.01% from N1.57 trillion as of 31st December 2020 to N1.51 trillion as of 1st April 2021.
- This is could be partly attributed to the bearish performance recorded in the Nigerian Stock Exchange market as data from the NSE showed that the All-Share Index dipped by 3.63% year to date as of April 1, 2021.
- A comparison of the performance of the fund types indicated that despite the fall in total net asset value in Q1 2021, Bond funds grew by +14.82%, Ethical funds by +12.95%, Fixed income funds by +12.91%.
- Real estate funds and infrastructure funds grew marginally by +0.69% and +0.43% respectively. Other funds recorded losses with the money market funds recording the highest loss of -20.68%.
Nairametrics tracked the performance of these mutual funds by comparing the fund prices as of 31st December 2020 with the fund prices as of 1st of April 2021.
Below were the top-performing mutual funds in Q1 2021. We also highlighted their performance in terms of changes in net asset value and included profiles of the funds as described on their websites.
ARM Ethical Fund – Asset & Resources Mgt. Company Ltd. (Ethical Funds)
The ARM Ethical Fund is suitable for Islamic investors who want long-term capital growth by investing strictly according to the principles of Islamic finance and ethical values. The Fund invests only in investments screened by a Shari’ah Advisory Board.
It invests in equities, real estates, and other investments that do not involve interest-bearing transactions.
December 31st, 2020
Fund Price – N35.46
April 1st, 2021
Fund Price – N36.55
Return – 3.06%
Ranking – Fifth
Commentary: The ARM Ethical Fund was the fifth-best performing fund in the first quarter of the year. The unit price appreciated by 3.06% while the net assets value increased by 3.15% from N358.96 million as of 31st December 2020 to N370.27 million as of 1st April 2021.
Vantage Dollar Fund – Investment One Funds Management (Fixed Income Fund)
Vantage Dollar Fund is an open-ended Unit Trust Scheme by Investment One Funds. The Fund seeks to provide investors with a bias for Dollar-denominated securities and access to such securities, which ordinarily would be inaccessible to them by virtue of the minimum amount typically required to make such investments.
December 31st, 2020
Fund Price – N502.90
April 1st, 2021
Fund Price – N518.95
Return – 3.19%
Ranking – Fourth
Commentary: The Ventage Dollar fund performed as the fourth-best performing fund in the first quarter of the year. The unit price appreciated by 3.19% while the net assets value declined by -2.97% from N1.85 billion as of December 31st, 2020 to N1.79 billion as of April 1st 2021.
FSDH Dollar Fund – FSDH Asset Management Ltd. (Fixed Income Funds)
This is an open-ended mutual fund that invests in US Dollar denominated Fixed Income Securities issued by Nigerian Sovereign and Corporate Entities. The objective of the fund is to provide customers with the opportunity to invest in dollar-denominated instruments.
The minimum amount required to invest in the fund is $1,000.
December 31st, 2020
Fund Price – N415.10
April 1st, 2021
Fund Price – N431.44
Return – 3.94%
Ranking – Third
Commentary: The FSDH Dollar Fund was the third best performing fund in the first quarter of the year. The unit price appreciated by 3.94% while the net assets value increased by 41.99% from N846.27 million as of December 31st, 2020 to N1.2 billion as of April 1st 2021.
FBNQuest Asset Management Limited – Institutional (Bond Funds)
The FBN Nigeria Eurobond (USD) designed for institutional investors is also invested in US Dollar-denominated debt instruments issued by the Nigerian government and reputable corporate institutions and managed by FBNQuest Asset Management Limited.
To begin investment as an institutional investor, a minimum of $100,000 is required for a minimum tenor of 180 days.
December 31st, 2020
Fund Price – N49,283.56
April 1st, 2021
Fund Price – N51,682.31
Return – 4.86%
Ranking – Second
Commentary: The FBNQuest Asset Management Limited bond funds created for institutional investors was the second best performing fund in the first quarter of the year. The unit price appreciated by 4.86% while the net assets value increased by 5.69% from N571.01 million as of December 31st, 2020 to N603.51 million as of April 1st 2021.
FBNQuest Asset Management Limited – Retail (Bond Funds)
The FBN Nigeria Eurobond is a fixed income mutual fund that invests in the US Dollar-denominated debt instruments issued by the Nigerian government and reputable corporate institutions. Investments can be made into this fund by both retail and institutional investors.
To get started as a retail investor, a minimum investment of $2,500 is required and the minimum holding period is 180 days.
December 31st, 2020
Fund Price – N49,346.65
April 1st, 2021
Fund Price – N51,751.89
Return – 4.87%
Ranking – First
Commentary: The FBNQuest Asset Management Limited bond funds created for retail investors was the First best performing fund in the first quarter of the year. The unit price appreciated by 4.87% while the net assets value increased by 18.29% from N4.57 billion as of December 31st, 2020 to N5.41 billion as of April 1st 2021.
Bubbling under
- Legacy Equity Fund – 1.95%
- PACAM Equity Fund – 1.81%
- Stanbic IBTC Shariah Fixed Income Fund – 1.66%
- AVA GAM Fixed income Dollar Fund – 1.65%
- United Capital Fixed – 1.51%
Funds Management
Best Pension Funds in Nigeria for the month of March 2021
Nigerian Pension Fund administrators in the month of March 2021, recovered from the downturn recorded in February to post marginal growth.
Nigerian pension funds asset recorded tepid growth in the month of March, recovering marginally from the negative growth recorded in the previous month, as 81.25% of the total funds recorded positive growth against 22% recorded in February.
This is according to data tracked by Nairalytics Research on the fund performances of Nigerian Pension Funds Administrators.
A cursory look at the data revealed that the RSA Fund IV on average performed the best in March, followed by RSA Fund III, while RSA Fund I remained flat in the review month.
Nairametrics considered the prices of the different RSA funds as of 28th February 2021 and compared them with the prices as of the last day of March (31st March 2021).
READ: Pension asset increases to N9.33 trillion – PenCom
Below is a list of the best-performing funds in March
RSA Fund I
This fund has the highest allocation of risky or variable income instruments and participation is strictly upon a formal request from a contributor. The RSA Fund I is suitable for people who want to invest in high-risk instruments with higher rewards. Hence, contributors who are 50 years and above cannot apply to be moved into this fund.
According to available data 9 of the funds recorded positive growth in the month under review, as against 1 recorded in the previous month.
First position: Crusader Sterling Pensions Limited
- March return: 0.68%
Second position: ARM Pension Managers Limited
- March return: 0.52%
Third position: FCMB Pensions Limited
- March return: 0.44%
Others on the list of gainers include; Premium Pension Limited, Trustfund Pensions Plc, Pensions Alliance Limited, Stanbic IBTC Pension Managers, NPF Pensions Limited, and Sigma Pensions Limited.
It is noteworthy that Investment One Pension Managers and Veritas Glanvills Pensions were not included in the analysis, as their information could not be obtained, as at the time of writing this article. Considering the aggregate performance of the fund, it stood flat at 0%.
READ: NLPC, Investment One and OAK PFAs generate highest ROI in three RSA funds for 11 months
RSA Fund II
This fund is balanced and suitable for middle-aged contributors as well as those with a medium risk appetite. It is designed to be less risky with reduced allocation to variable income instruments compared to Fund I. The age requirement for participation is 49 years and below.
First position: Crusader Sterling Pensions Limited
- March return: 0.65%
Second position: FCMB Pensions Limited
- March return: 0.63%
Third position: ARM Pension Managers Limited
- March return: 0.6%
Others on the list, which recorded positive growth in the month of March include; Leadway Pensure PFA, Nigerian University Pension Management, Trustfund Pensions, Pensions Alliance, Sigma Pensions Limited, Stanbic IBTC, and Radix Pension Fund Managers.
Of the 20 funds considered in the analysis, 16 recorded positive growth in value, representing 80% of the total. Meanwhile, it is noteworthy that as with the case in the RSA fund I category, Investment One Pension Managers and Veritas Glanvills Pensions, were not included.
The aggregate performance of the RSA Fund II, stood at 0.29% in March 2021.
RSA Fund III
This is a conservative fund that is designed for contributors close to retirement and contributors with a low-risk appetite. It is suited for contributors between the ages of 50 and 60 years. However, younger contributors may opt to participate in this fund category.
First position: APT Pension Fund Managers Limited
- March return: 1.17%
Second position: Crusader Sterling Pensions Limited
- March return: 0.73%
Third position: Pensions Alliance Limited
- March return: 0.66%
In this category of funds, all the pension funds posted positive growth in the month of March, with the exception of Investment One and Veritas Glanvills, which were not included in the analysis. The aggregate RSA Fund III, appreciated by 0.47% in March 2021.
RSA Fund IV
The RSA Fund IV is exclusively for retirees. In the month of February, of all 22 Pension Fund Administrators, 10 of them recorded positive growth. However, they were all marginal growth of less than 1%.
First position: Pensions Alliance Limited
- March return: 0.74%
Second position: First Guarantee Pension Limited
- March return: 0.74%
Third position: Crusader Sterling pensions Limited
- March return: 0.71%
Similarly, as witnessed in the RSA Fund III category all but AIICO Pension Managers recorded positive growth in March 2021, a recovery compared to the previous month. In terms of the aggregate performance, RSA Fund IV grew by 0.5% in the month under review.
According to the monthly report from the National Pension Commission, the total Pension Fund assets declined in the month of February 2021 from N12.3 trillion recorded as of 31st January 2021 to N12.25 trillion. This could be attributed to the bearish performance of the various funds in February 2021.
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