According to data from the National Pension Commission (PENCOM), the total Asset Under Management of the Nigerian Pension Fund Administrators rose by 6.28% ytd to N14.27trn as of June 30, 2022, from N13.42trn in December 2021.
We believe the increase in total Asset Under Management (AUM) was largely driven by inflows from monthly contributions just as the number of Retirement Savings Accounts (RSA) grew by 2.8% to 9.8m in H1 2022 from 9.53m at the end of December 2021. Likewise, Micro Pensions’ Retirement Savings Accounts grew 5% q/q to 80,419 from 76,588 at the end of March 2022.
We note that investments in Federal Government instruments (FGN Bonds, Treasury Bills, Agency Bonds, Sukuk and Green Bonds) dominated the total Asset Under Management with 63.14% share (N9trn) while Money Market Instruments (fixed deposits, Bankers’ acceptance, Commercial Papers) followed with 15.07% share (N2.15trn) made up of mainly fixed deposits. Corporate Debt Instruments constituted 8.34% (N1.19trn) while domestic equity shares accounted for only 6.79% share (N969.15 bn). Cumulatively, these four asset classes constituted 93.34% (N13.32trn) of the Pension Fund Administrators’ total Asset Under Management.
The data showed that investments in Commercial Papers (CPs) increased the most by 297.73% to N236.28bn as of June 2022 from N59.41bn in December 2021. This was obviously driven by the increase in Commercial Paper issuances in the review period as several corporates issued CPs. Specifically, MTN Nigeria Communication Plc raised N127 bn (in two tenors – a 184-day at 7.50% yield and a 254-day at 8.50% yield); NOVA Merchant Bank issued N20bn (in two tenors – a 182-day and a 270-day at 10% yield); UAC Nigeria Plc issued N18.7bn (in two tenors – a 90-day at 8% yield and a 181-day at 8.25% yield);
FBN Quest Merchant Bank Limited N15bn (in two tenors – a 180-day at 8.25% yield and a 270-day at 9% yield); Rand Merchant Bank Limited N15bn (in two tenors – a 182-day at 7.75% yield and a 270-day at 8.5% yield); United Capital Plc N12.48 bn (in a 210-day at 10% yield); amongst others. We believe that the increase in investment by the PFAs was driven by a mix of the huge volume offered and higher yields (compared to treasury bills yields).
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Meanwhile, investments in Treasury Bills also increased by 86.01% to N475.64bn in H1 2022 from N255.70bn at the end of December 2021 particularly at the 364-day tenor as yields were relatively higher than the shorter end of the curve. The Corporate Bonds’ portfolio increased by 27.62% to N1.16trn in June 2022 from N906.44bn as of December 2021. Also, investments in domestic equity shares ticked northward by 5.88% to N969.15bn at the end of June 2022 from N915.31bn at the end of December 2021. This, we believe was buoyed by the stock
market rally in Q1 2022.
PFA’s portfolios remain skewed towards riskless FGN instruments and money market instruments which almost all earn negative real interest rates, considering inflation at 18.6%. Though we acknowledge the fact that there is a dearth of safe investments with moderate yield, we are of the view that Nigerian PFAs need to strive to give their contributors a decent inflation-adjusted return, but this may not be possible if PFAs continue to invest c.60% of
their funds in risk-free government assets.
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