Sound asset growth of the PFAs

The assets under management (AUM) of the regulated pension industry increased by 16.1% y/y to N6.16trn (US$20.1bn) in December. We view the increase as creditable when we consider the softness of FGN bond prices over the period, and the arrears in contributions by some state governments and public agencies. The breakdown by asset class shows no substantial change: the share of FGN securities (bonds and NTBs) rose from 66.4% to 72.2% of the total over the period while that of domestic equities narrowed from 10.0% to 8.1%.

Fund managers do not like telling retail investors, who numbered more than 7.3 million at end-September, that the value of their portfolios has fallen over the last month. This would have been the message for much of the past three years if equities had dominated their portfolios. The NSEASI fell for three successive years (2014-16), and is also down 6% ytd. 

The PFAs held 48.5% of the stock of FGN bonds at end-December. They are also the anchor buyers at the monthly auctions of FGN bonds to finance the budget deficit. The DMO has raised N918bn in the first four sales of the year towards the FGN’s proposed target of N1.25trn for net domestic borrowing for the year. This includes N426bn in the long bonds (Mar ‘36s), which are popular with the PFAs for matching purposes.


Sound asset growth of the PFAs Sources: National Pension Commission (Pencom); FBNQuest Research

Pencom last week released its amended Regulation on Investment of Pension Fund Assets, which has been approved by the presidency. We note two of the changes: that companies which are themselves the result of mergers (such as bank holding companies) are now eligible investments; and that non-interest bearing capital markets products (such as sukuk) are also eligible.

Sadly, there are no industry comparisons of the PFAs by performance.

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