The Chief Executive Officer of Sigma Pensions Limited, Dave Uduanu, said Pension Fund Administrators in Nigeria are going to have a really difficult year. Uduanu disclosed this recently when he joined CNBC Africa’s Esther Awoniyi to talk about how Nigerian PFAs intend to navigate through Nigeria’s compressed investment terrain and inflationary pressures.
According to him, 2020 is looking very tough, with bond yields below 10%, even as treasury bill yields are at about 4%. Uduanu also noted that these are all below inflation rate, even as he wondered how possible it is to manage savings in a country where yields are below inflation.
He said: “In 2019, a lot of PFAs were able to deliver returns that were slightly above inflation in the four key funds that we manage. However, this year is looking tougher, it’s looking challenged. Bond yields are below 10% and treasury bill yeilds are below 4%… All below inflation.
“I think the key question is – how do you manage savings in a country where yields are below inflation. Even asides from pension funds, for the man on the streets, if you want to achieve the goal of financial inclusion which is for them to open bank accounts and keep their money in the bank, you have to ensure that at least, interest rates are at par with inflation or very close to inflation. But that’s not the case here.
“So, PFAs are really going to struggle this year. However, the equity market has come to support the yields. In the first month of the year, it was about…just under 10% and in the first two weeks of the year it was touted as the best performing stock in the world.”
At the bane of PFAs’ rather gloomy 2020 performance outlook is recent restrictive policy that was implemented by the Central Bank of Nigeria. Uduanu recalled that 2019 was relatively good year for bonds and treasury bills until the apex bank came up with its OMO policy. The policy more or less restricted a large segment of investors from being able to invest in treasury bills.
Speaking further, Uduanu admitted to a sentiment which was previously expressed by other PFAs about the likelihood that some specific banking stock might lose their valuation. He also expressed worry over the lack of alternative asset classes to support the void this would most certainly create.
“Look, the market is driven by liquidity. We see a lot of PFAs and indeed other investors jumping into the equity market. The market has been depressed for the last three years. There are some good names that have rallied in the last few years. Banking names will struggle this year because, as you know, the Central Bank raised its CRR rate and that means that banks are going to struggle with liquidity…”
He, however, expressed the optimism that the Nigerian equity market will do much better than last year and this is due mainly to the fact that investors t=do not have much investment options at the moment.
In terms of where PFAs are specifically looking to invest this year, Uduanu mentioned the real estate sector. According to him, now that the other rates are down significantly, PFAs are beginning to see mortgage rates that are very close to 10%. He added that the PFAs are now trying to come up with a vehicle that allows borrowers to borrow at 9%.
You may watch the full interview here.