Culled—Proshare
May 14, 2020
By FBNQuest Research
We note from Pencom’s latest monthly report that the assets under management (AUM) of the regulated pension industry in Nigeria increased by 17.9% y/y in February to N10.51trn (US$27.2bn), and by 0.7% m/m. The share of equities in AUM peaked at 16% in 2007, ie before the blowout on the NSE. It now stands at little more than 5%. The equities market took further batterings in 2018 and 2019. Even before the onset of the pandemic, this year did not look transformational. In contrast, double-digit returns are available for many fixed-income assets but not NTBs.
The PFAs’ holdings of FGN paper amounted to 67.5% of AUM in February, compared with 71.0% the previous month. The share of FGN bonds declined by 126bps. The more significant trend, however, has been the fall in the share of NTBs by 216bps m/m and by 838bps y/y.
This followed the crashing of yields on NTBs in response to CBN circulars in October that barred domestic non-bank players (notably the PFAs) from its open market operations (OMO). As their bills issued within OMO mature, fund managers obviously have to make alternative investments. Initially they favoured the NTBs: those yields buckled.
FGN bonds still offer double-digit returns (other than the shortest maturities). The Debt Management Office’s issuance programme will have to be accelerated now that it has a domestic funding target of N1.59trn this year, rather than the previous N745bn, because of the reallocation of earlier authorized external borrowing. Liquidity in the market depending, the possibility exists that the large increase in supply will feed into returns.
AUM of PFAs, Feb 2020 (% shares)
Sources: National Pension Commission (Pencom); FBNQuest Capital Research
The loss of NTBs has been the gain of the domestic money market, the share in AUM of which has risen from 7.9% to 15.3% in 12 months, increasing by N900bn. Bank placements have driven this strong growth.