The elusive tipping point in asset allocation

The assets under management (AUM) of the Nigerian regulated pension industry increased by 23.1% y/y in November to N7.41trn (US$24.2bn), and by 1.5% m/m. They are growing at a decent rate yet, at just 6.6% of GDP for the 12 months through to Q3 2017, are running well behind many emerging markets. While it would appear that arrears in contributions by state governments and their employees have fallen, it remains the case that the industry is yet to tap the informal sector of the economy, which accounts for an estimated 83% of the national workforce.

The industry’s holdings of FGN paper amounted to 70.6% of AUM in November, compared with 71.2% one year earlier. The share of NTBs increased by close to four percentage points over the 12-month period, to 16.3%.

The role of the PFAs in local debt markets remains pivotal. Their holdings of FGN bonds at end-November represented 47.7% of the stock of the instruments at end-September.

PenCom’s latest data do not indicate a surge of investment in domestic equities. The NSEASI had risen by 50.3% y/y at end-November while AUM in the asset class increased by 37.5% over the same period.’

The elusive tipping point in asset allocation - FBNQuest Research

We will be curious to see the extent to which the institutions have participated in the further 13.6% rise in the NSEASI since November, particularly with the marked pick-up in daily turnover this year.

There would also normally be a tipping point at which multi-asset class investors shift to domestic equities in response to declining returns in naira debt markets: at primary auctions since end-August, yields have narrowed by 400bps for 182-day NTBs, 600bps for 364-day paper and +/- 360bps for FGN bonds.

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