There are indications that the continued increasing exposure of fund managers to federal government securities in the face of an interest rate hike by the Central Bank is positively impacting the pension sector in Nigeria.
This is according to the latest unaudited report by the National Pensions Commission (PenCom) for the industry portfolio of pension funds from June 2022, which showed that the total assets under management (AuM) of the pension sector increased by 0.52 percent month-over-month ( m/m) to N14.28 trillion in June 2022 from N14.19 trillion in the previous month.
It also registered a 12.7 percent year-over-year (y/y) of N12.66 trillion in the same month last year.
This reported increase was the result of fund managers’ continued increasing exposure to federal government securities in the face of an interest rate hike by the central bank, experts say.
The total number of pension accounts also rose from 9.6 million in May to almost 9.8 million.
While the pension sector in Nigeria has grown remarkably since 2004 when the Pension Reform Act was passed, analysts say there is still some ground to cover and this can be achieved with continued investor education and efforts to achieve significant penetration into that space. .
Meanwhile, it is worth noting that, in a historical trend, Nigerian pension funds have always favored sovereign debt as an asset class due to the scarcity of good quality investable securities available to them.
Other associated whys and whys include the relative lack of depth of the stock market, which is currently in the country of correction, and the need for portfolio safety considerations.
“Our analysis of the report indicated that FGN bonds were the main driver of month-over-month gains, although their value fell nearly 1.90 percent or N158 billion m/m from N8.47 trillion in May, while their share of total assets under management decreased by 41.7 percent.
But if we include Treasury bills, Sukuk bonds and other agency bonds, the total FGN securities, the stock rose 344 basis points (bps) to about 63.14 percent of total assets under management, up from 62.1 percent. in May,” analysts from Cowry Assets Management Limited said in a note to investors.
They noted that their share of domestic equities fell from nearly N1.1 trillion in May to N969 billion, accounting for 6.8 percent of total assets under management in June.
Elsewhere, the PFA’s exposure to state government debt securities, according to the report, accounted for 1.13 percent of the total NAV which stood at N160.96 billion.
Also, the share of money market instruments and mutual funds in the sector’s total assets was 15.07 percent and 0.39 percent, while other asset classes accounted for 4.45 percent of the total value in June 2022.
The report also revealed that there was an 18.6 percent year-over-year decline in total treasury holdings by fund managers to N475.64 billion, as well as declining holdings in the mutual fund space by -51.8 percent to N56.13 billion from last year’s N116.34 billion, while their corporate bond holdings grew 25.1 percent year-over-year to 1.19 trillion.
“We believe that yields in the fixed income sector will continue to rise in the coming weeks, prompting positive sentiment from investors, especially pension fund managers, to buy more for a much longer period of time due to expectations of increased supply of government bonds as part of FG’s plan to fund its budget deficit. “We also see more opportunities for significant levels of penetration into the space to bring the pension savings penetration rate in Nigeria above current levels,” the analyst added.
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