BusinessDay

Pension funds opt for money market over FG bonds

The pension fund assets under management invested in domestic money market funds rose by N113 billion to N2.25 trillion in March, according to official data.

The money market funds accounted for 16.2 percent of the pension assets as of March.

The share of Federal Government of Nigeria (FGN) securities in the asset mix trended down slightly by 5 basis points to 61.3 percent or N8.5 trillion in value terms, according to analysts at FBNQuest.

A money market instrument is a short-term fixed-income instrument that represents a loan made by an investor to a borrower, typically corporates or governments. The tenor is usually not more than a year.

Money market instruments include treasury bills, commercial papers, and fixed deposits with banks. They attract lower returns compared to bonds and shares because they are associated with lower risks.

FBNQuest noted that the latest data from the National Pension Commission (PenCom) show that total assets under management (AUM) for the regulated pension industry grew by 12 percent year-on-year to N13.9 trillion as of March 2022. On a month on month basis, the industry’s AUM advanced by 1 percent from the N13.8 trillion reported in February.

According to the commission, the industry’s exposure to FGN bonds declined marginally to 58.7 percent of their total AUM from 59.1 percent in February.

Nigerian pension funds have historically favoured government debt as an asset class due to the paucity of good quality investible securities available to them. Other related reasons include the relative lack of depth of the equities market, and portfolio safety considerations, FBNQuest said.

It said: “We see that the value of AUM allocated to domestic equities fell by N33 billion m/m to N944 billion in March or a share of 6.8 percent down from 7.1 percent in February. However, given the strong performance posted by the stock market in April, we expect equities’ share of the industry’s AUM to trend modestly upward.

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“The pension industry’s exposure to Nigerian Treasury Bills continues to trend south. The share fell to just 1.1 percent of AUM compared with 1.3 percent in February. The explanation for this can be attributed to the instrument’s low single-digit yields, which was engineered by the CBN following its prohibition of domestic non-bank institutions from participating in OMO auctions.”

The agency said that unlike peer countries, Pension Fund Administrators’ (PFAs) exposure to infrastructure funds and real estate properties is paltry at N75 billion and N156 billion respectively.

The Central Bank of Nigeria, in collaboration with the Nigerian Sovereign Investment Authority and the African Finance Corporation, established the Infrastructure Corporation of Nigeria, which is anticipated to raise around N15 trillion to fund infrastructure projects across the country. PFAs could be a potential source of funding for the company if the appropriate framework is in place, FBNQuest said.

The Contributory Pension Scheme is a mandatory scheme, backed by the Pension Reform Act 2014, which allows employees and employers in the public and private sectors to contribute a minimum of 18 percent of an employee’s monthly emolument into his or her Retirement Savings Account.

These contributions are then invested by the PFAs with the objectives of safety and maintenance of fair returns under strict regulation by PenCom.