Freshly released report on pension fund assets by National Pension Commission (NPC) showed that the total value of pension assets rose year on year (y-o-y) by 17.92% to N12.30 trillion in January 2021 from N10.43 trillion printed in January 2020.
According to the report, most of the pension fund assets were invested in FGN Securities.
However, its share of the total assets moderated to 65.92% (or N8.11 trillion) in the month under review, from a 70.96% (or N7.40 trillion) recorded in 2020, as pension managers moved funds away from T-bills given the collapse of the yields, particularly in the money market, to record low single-digits amid CBN’s accomodative stance to cushion the effect of COVID-19 pandemic on the economy.
As Pension Fund Administrators (PFAs) shifted focus from investment in T-bills, we saw investment preference drifting towards Local Money Market Securities (LMMS) as total funds invested in this space rose y-o-y by 39.61% to N1.65 trillion in January 2021 (lifting its share of the total assets to 13.40%), from N1.18 trillion in January 2020 (or 11.31% of total assets).
Total invested fund in Corporate Debt Securities as a percentage of total pension fund assets stood at 6.80% (or N0.84 trillion) in January 2021 from 6.25% (N0.65 trillion) in January 2020.
However, funds invested in Real Estate Properties as a fraction of the total pension fund assets dropped to 1.29% (or N0.16 trillion) from 2.09% (or N0.22 trillion) in the period under review.
Similarly, we saw Cash and Other Assets which constituted 1.04% (or N127.43 billion) of the total pension fund assets in January 2021 build up from 0.28% (or N29.28 billion) in January 2020.
Further breakdown of the N8.11 trillion FGN Securities revealed that investment in FGN Bonds gulped N7.33 trillion in January 2021, rising from a N5.71 trillion in January 2020.
Also, 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 90.09% of investment in LMMS, rose to N1.48 trillion in January 2020 from N1.06 trillion in January 2020 while investment in commercial papers, constituting 9.91% of investment in LMMS, barely increased to N0.16 trillion from N0.12 trillion.
On the flip side, investment in Treasury Bills plunged to N0.67 trillion in January 2021, from N1.58 trillion in January 2020; also, investments in Sukuk and Green Bonds were relatively low as their respective shares of allocated pension assets stood at N84.80 billion and N15.07 billion in the month under review.
Meanwhile, pension fund assets investment in the domestic equities market rocketed to N0.92 trillion in January 2020 from N0.59 trillion in January 2020; thus, increasing the weight of total pension funds in local equities market to 7.48% from 5.71% amid some “patronage” it received from “RSA FUND II” – total invested funds rose to N620.77 billion, from N395.80 billion in January 2020.
The significant reduction of investment in T-bills amid declining yields amounted to capital gain for the PFAs, as most of the bills were bought at relatively high yields in the early part of 2020.
The increased investment of funds in equities market, long-dated securities and bank placements with relatively better yields also contributed positively to the growth in pension fund despite job losses – unemployement rate hit 33.3% up from 23.1% –, salary cuts and general economic downturn which were expected to negatively impact the growth of the pension assets in 2020.
Hence, we expect the recent increase in rates across the board and further improvement in economic activities (World Bank reviewed economic growth rate of 3.4% across Sub-sahara Africa), to boost returns and increase contributions to pension asset going forward.