April 22, 2021/Proshare

by FBNQuest Research

PenCom’s latest monthly report tells us that the assets under management (AUM) of the regulated pension industry increased by 16.6% y/y to NGN12.25trn (USD29.9bn) at end-February yet declined by -0.4% m/m. The commission explains the rare, albeit small, decline on a marked to market basis as the result of falling prices for some fixed-income securities in identified funds. FGN debt securities represented 65.6% of the total at end-February. When we add corporate and state government issuance, we find fixed-income exposure equivalent to 73.7% of the industry’s AUM. For whatever reason, the pension funds are wary of taking sizeable positions in other assets such as real estate, private equity and infrastructure funds. 

The share of domestic equities rose from 5.1% to 7.0% over the twelve months, and members’ holdings by 61.1% to NGN857bn. Over the period the all-share index (ASI) increased by 51.8%, indicating a shift in allocation in addition to price gains in the market. This momentum has been lost, however, as fixed-income returns have recovered from the lows that fuelled the surge on the bourse in Q4 ’20.  

The holdings of FGN paper are predominantly the bonds, which represented 59.9% of total AUM. They are essentially the only game in town. Investors have enjoyed a very healthy yield pick-up since the start of the year and may reasonably expect a little more of the same in view of the huge deficit financing requirement this year.  

The Debt Management Office has raised NGN910bn from bond auctions in four months (including non-competitive bids from public agencies). It is on schedule to raise its domestic funding target of NGN2.34trn this year. Yet it knows that it must keep domestic investors onside since the offshore portfolio community has been hit hard by the external payments pipeline.  

Over the same 12 months the share of NTBs has collapsed from 13.0% to 5.5%. We may see the reversal of this trend, however, judging from a NGN7bn rise in holdings in February.  Returns are recovering for the NTBs as well as the bonds: for the 364-day instrument they have soared from below 1% in December to 8%. At the long end of the bond curve, they are roughly back at levels seen 12 months ago.  

The average value of a retirement savings account (RSA) at end-February was NGN1.03m, unchanged from the previous month.  

Just NGN99m was invested at end-February in the newest RSA fund (no V), which has been created for micro pensions. It has been in operation since January ’20.

AUM of PFAs, Feb ’21 (% shares)  Total: NGN12.25trn

Sources: National Pension Commission (PenCom); FBNQuest Capital Research