Nigeria’s pension fund administrators jerked up the share of their holdings in domestic equity by almost fifty per cent as the huge shift away from treasury bills, NTBs and the equities market roared in return..
According to analysts at FBN Quest, “the share of domestic equities (of PFAs) picked up from 5.4% to 6.4% over the twelve months, or by 47.6% to NGN791bn in holdings.
“Over the period the all-share index increased by just 29.8% so we have some evidence for the theory that the surge on the stock market in Q4 ’20 was driven in part by changes in asset allocation by domestic investors.”
Retail players in Nigeria said the analysts, account for more than 40% of domestic investor transactions.
The analysts said, “we think that this shift in allocation by the PFAs will be evident (and stronger) when the Pencom report for December is available. “
As 2021 opens equities investors will now be watching to see if this trend in asset re-allocation by the PFAs will continue in favour of equities opens as the huge pool of cash available to the PFAs seek better returns.
Read Also: Pension fund investment in bonds increases 51.8%, T-bills fall 69.7% in one year
Data from the regulator show that assets under management (AUM) of the pension industry increased by 23.0% y/y to NGN12.29trn (USD31.3bn) in November, and by 2.0% m/m.
The FBN Quest analysts said the asset mix remains heavily concentrated in FGN securities, which accounted for 66.2% of the total and they help us with a brilliant comparison with what obtains in Kenya, a key African market.
According to their report, Pencom’s Kenyan counterpart, the Retirement Benefits Authority, shows total AUM of KES1.32trn (USD12.4bn) at June ’20: there was sizeable exposure to immovable property (18.6%) and listed equities (14.2%) alongside the largest share in government securities (44.0%).
Fund managers in Nigeria will have their reasons for paying limited attention to assets such as real estate, private equity and infrastructure funds.
The holdings of FGN paper are predominantly the bonds, which represented 60.0% of total AUM. Over 12 months the share of NTBs has collapsed from 21.2% to 5.2% as the returns have tanked.
The indirect trigger was the CBN circular in October ’19 that shut the PFAs and other domestic nonbank players out of the market in its OMO bills.
The returns on the FGN bonds are well under water when we allow for headline inflation running close to 16% y/y.
The corporate debt market in Africa’s largest economy is relatively small although it has grown in recent months with some high-profile new issues. Holdings rose by 14.9% y/y to NGN687bn in November.
Still more insights from the analysts – the average value of a retirement savings account (RSA) at end-November was NGN1.02m, compared with NGN963,000 three months earlier. Just NGN71m was invested at end-November in the newest RSA fund (no V), which has been created for the micro pensions of the informal sector and SMEs.
The fund has been in operation since January ’20 and could be transformative if the industry finds the best marketing strategy.
