Pension Administration Investors Stash Funds in FGN Bonds as Slow Down on Nigeria Equities in Q3 2019 worsens

Date:

The National Pension Commission (NPC) recently released its report on pension fund assets for the
third quarter of 2019 showing that the total value of pension assets rose quarter on quarter (q-o-q)
by 2.76% to N9.58 trillion in September 2019 from N9.33 trillion in June 2019.

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According to the report, most of the pension fund assets were
invested in FGN securities as its share of the total assets stood at 71.43% (or N6.84 trillion) in
September 2019, from a 69.55% it printed in June 2019.

Also, the Pension Fund Administrators (PFAs) piled up money in Local Money Market
Securities (LMMS), although its share of the total assets was flattish q-o-q at 11.21% (or N1.07 trillion) in September.

Total invested fund in Corporate Debt Securities as a percentage of total pension fund assets stood at 6.49% (or N0.62 trillion) in September 2019 from 5.42% in June 2019.

However, funds invested in Real Estate Properties as a fraction of the total pension fund assets dropped to 2.42% (or N0.23 trillion) from 2.68% (or N0.25 billion) in the period under review.

Similarly, we saw Cash and Other Assets which constitute 0.28% (or N26.47 billion) of the total pension fund assets in September 2019 declined from 2.30% (or N214.21 billion) in June 2019.

Further breakdown of the N6.84 trillion FGN Securities revealed that investment in FGN Bonds, by the PFAs gulped N4.48 trillion in September 2019, rising from a N4.44 trillion it recorded in June 2019.

Investment in Treasury Bills rose to N2.26 trillion in September 2019, from N1.94 trillion in June 2019; however, investments in Sukuk and Green Bonds were relatively low as their respective shares of allocated pension assets stood at N80.53 billion and N13.38 billion in the quarter under review.

Also, the breakdown of investment in LMMS showed that more pension fund assets were invested in Banks (which include Open Market Operations, OMO, and DMBs fixed deposits) than in commercial papers.

Funds invested in Banks, constituting 88.79% of investment in LMMS, rose to N0.95 trillion in September 2019 from N0.94 trillion in June 2019 while investment in commercial papers, constituting 11.21% of investment in LMMS, increased to N0.12 trillion from N0.11 trillion.

Meanwhile, pension fund assets investment in the domestic equities market moderated to N0.49 trillion in September 2019 from N0.54 trillion in June 2019; thus, reducing the weight of total pension funds in local equities market to 5.13% from 5.76%.

Nevertheless, the equities market received some of “patronage” from “RSA FUND 11” as its share (N0.33 trillion) of the total pension fund investment in equities stood at 61.11% in September 2019.

Nigeria’s Composite Purchasing Managers’ Index 65.00 62.50 60.00 57.50 55.00 Source: NBS, Cowry Research

Non-Manufacturing Composite PMI
Manufacturing Composite PMI
The increased investment by PFAs in FGN Securities, especially FGN Bonds, was purposely to take advantage of the high yield in the bonds market as at September 2019.

With the benefit of hind sight, it is apparent that pension money managers took the right decision then given the crash in fixed income yields.

Meanwhile, treasury bills across different tenor buckets that matured this week were mostly refinanced at single-digit rates by CBN.

As there will be no T-bills auction in December 2019, we expect the current demand for T-bills to spill over to the bonds market; hence a reduction in bond yields is anticipated for most maturities.

More so, with the recent restriction of OMO transactions to only deposit money banks and foreign portfolio investors as well as the soon retirement of the current N950 billion worth of pension Investment in OMO bills, we expect bonds yields and rates to collapse going forward.

Hence, with the anticipated reduction in yields, we expect returns on pensioners’ funds to moderate in Q4 2019.

Thus, we opine that it is time the PFAs took advantage of the low stock prices and invest more in equities, given the high dividend returns in some selected stocks and the potential capital appreciation they also offer as stock prices have dropped way below their net book values.

Godwin Okafor
Godwin Okaforhttps://naija247news.com
Godwin Okafor is a veteran Financial Journalist, Internet Social Entrepreneur, and the visionary Founder of Naija247news Media Limited. With an extensive career spanning over 16 years in financial journalism, Godwin possesses a wealth of experience that seamlessly bridges both traditional and digital media landscapes. His journey in journalism commenced at Business Day, Nigeria, where he laid the foundation for his prolific career. In 2010, Godwin took a bold step by founding Naija247news Media, a platform that has since become a prominent player in delivering timely and accurate news. Educationally, Godwin Okafor holds a Bachelor's degree in Industrial Relations and Personnel Management from the prestigious Lagos State University, Ojo, Lagos. His commitment to continuous learning led him to the Lagos Business School, where he further honed his skills. Additionally, he is recognized as a Fellow of the University of Pennsylvania, having successfully completed the Wharton Seminar for Business Journalists. Throughout his illustrious career, Godwin has earned acclaim by winning numerous journalism awards, a testament to his dedication to excellence in reporting. Beyond his role as a Financial Journalist, Godwin Okafor wears the hat of the Chairman at Emmerich Resources Limited, the publishing entity behind Naija247news. His visionary leadership has played a pivotal role in shaping the media landscape and establishing Naija247news as a trusted source of information. Godwin Okafor's multifaceted expertise, commitment to journalistic integrity, and leadership in the realm of business journalism underscore his influential presence in both the media and entrepreneurial spheres.

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