Nigerian Pension Fund Administrators (PFAs) raised their investments in federal government securities by N184.47 billion in the third quarter of 2022, lower than N505.81 billion invested in the previous quarter. This is according to data from the National Pension Commission (PENCOM).
Investments in federal government securities by the pension industry hit N9.19 trillion as of September 2022 from N9.01 trillion recorded as of the end of June 2022. This brings the total investments in FGN securities to N418.7 billion between January and September 2022.
Also, the total pension asset under management rose to N14.42 trillion by the end of September 2022, from N14.27 trillion recorded as of the previous quarter, representing an increase of N156.74 billion in the past three months.
Specifically, investments in federal government bonds increased by N490.66 billion in the period under review to stand at N8.8 trillion as of the end of September 2022 from N8.31 trillion recorded as of June 2022. Meanwhile, exposure in the government treasury bills dropped to N185.87 billion in September from N475.6 billion.
The amount invested in federal government securities accounted for 64% of the total assets under management. This is largely due to the conservative nature of pension investment in Nigeria. The Nigerian Pension Industry being highly regulated requires that most of the pension funds be invested in federal government securities.
Government securities are seen as haven assets, with no risk of loss of funds compared to other variable assets. Especially, considering that funds used by the pension administrators are for the public.
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Breakdown of the report
- Investments in corporate debt securities rose significantly by 25.03% to N1.49 trillion between June and September 2022.
- On the other hand, PFAs reduced their investments in real estate by 2.9% to N229.37 billion as of September 2022 from N236.2 billion recorded as of the beginning of the quarter.
- The RSA fund II still accounted for most of the fund contribution with N6.29 trillion, representing 43.6% of the total pension funds, followed by RSA Fund III with N3.95 trillion, which represents 27.4% of the total assets.
- Existing schemes accounted for 10% of the total funds, decreasing by N1.59 billion in Q3 2022 to stand at N1.43 trillion. Meanwhile, the CPFAs accounted for 10.3% of the total funds, standing at N1.49 trillion as of the review period.
Further breakdown showed that a sum of N12.77 billion was invested in Agency Bonds, N127.59 billion in Sukuk bonds, and N61.64 billion in green bonds. Meanwhile, total funds in state government securities stood at N166.51 billion as of September 2022.
How Treasury bills and FGN bonds are performing
- Increased interest in federal government securities by the PFAs is likely to continue in the foreseeable future considering the rising yield in FGN bonds and treasury bills, after the Central Bank raised the benchmark interest rate to a record high of 15.5% in September 2022.
- A day after the CBN raised the interest rate, the central bank’s 1-year treasury bills rate rose from 8.5% to 12%, recording an oversubscription of 114.6% having attracted a total subscription of N233.32 billion.
- In the same vein, according to information from the Debt Management Office (DMO), the FGN Savings Bond for October 2022 recorded a total allotment of N282.093 million for a 2-year tenor and N945.618 million for the three-year tenor with coupon rates of 11.382% and 12.382% respectively.
- These are higher compared to the coupon of 11.041% and 12.041% recorded in the previous month.
On the other hand, investment in the local equities market declined by N100.57 billion in the period under review, standing at N868.58 billion as of the end of September 2022. This is largely attributed to the bearish movements in the local bourse in the second half of the year.
According to data from the NGX, the Nigerian stock market recorded a 5.39% decline in its All-Share index in the third quarter of the year, reducing the gains recorded in the first half of the year as a result of huge sell-offs in Bluechip stocks.
What this means
Investors are beginning to reallocate their investments into safer assets following the high volatility in variable assets after the CBN adopted a tightening monetary policy to tame the rising rate of inflation in the country. Pension Funds Administrators are also heading in the same direction to hedge against inflationary pressure and mitigate losses.
