Pension Fund Administrators (PFAs) have expressed concern over the impact of the new Central Bank of Nigeria’s (CBN) policy restricting individuals and local corporates from participating in Open Market Operation (OMO) auctions.
Angela Sere-Ejembi, director, Financial Markets Department at the CBN, had said the restriction applied to domestic corporates (inclusive of non-bank financial institutions) both at primary and secondary market activities.
According to Sere-Ejembi, the CBN has directed deposit money banks to exclude individuals and domestic corporates from participating in its OMO. OMO is a financial instrument used by the Central Bank to sell treasuries bills and other instruments.
The PFAs say OMO has been their major investment instrument contributing significantly to their yields and returns on investment, but notes that its restriction will mean so much on their investment returns.
But the PFAs, who spoke through their umbrella body, the Pension Fund Operators Association of Nigeria (PenOP), say however it understands that it could have been a decision by the apex bank, the CBN to maintain stability or control liquidity in the economy, which is one of its core responsibilities.
Wale Odutola, head of brand committee of PenOp, responding to questions during the 2019 Media Retreat organised by the association, confirmed the impact on investment of PFAs, saying, “Yes, it is a concern because we get better yields from there than other instruments.”
Odutola, who is also the managing director/CEO of ARM Pensions Limited, says the major challenge again is that it puts the PFAs in reinvestment risks, because it puts us in a position whereby we will have to look for alternative investment instruments to sustain our returns’ target.
He however notes that closing of that window means other windows could open, like the Debt Management Office (DMO) that can also issues treasury bills.
Ronke Adedeji, president of PenOp, who also confirms the development, says no doubt, as PFAs we are heavily involved, saying, “This OMO was not there initially, but for the time it has been in operation we have benefited significantly as PFAs, and we hope that other instruments will open with this closure.”
Adedeji, who is also the managing director/CEO of Leadway Pensure, says PFAs are professionals in investment, and this will be a test of their professionalisms because they must continue to increase yields for their pension contributors.
The total value of pension fund assets based on unaudited valuation reports grew from N9.03 trillion as at the end of March 2019, to N9.33 trillion as at June 2019, representing a growth of 3.27 percent (N294.91bn). And this figure is about N10 trillion today, according to PenOp.
The growth indicates a decrease in the quarterly growth rate compared with the 4.55 percent for the previous quarter; this was mainly due to market valuation of quoted equities.
A breakdown of the pension industry portfolio indicates that the pension fund assets were mainly invested in Federal Government Securities, with an allocation of about 70 percent of the total pension assets (FGN Bonds: 48%, Treasury Bills: 21%, Sukuk Bonds: 1%, while Agency Bonds and Green Bonds: less than 1%).
The report further indicates that the value of investments in domestic ordinary shares was N536.97 billion (5.76% of industry portfolio value) as at June 30, 2019, indicating a decrease of N53.64 billion compared with the value of N590.61 billion as at March 31, 2019.
The decrease in the value of investments in domestic ordinary shares was primarily due to the market price depreciation of some stocks during the period, as the Nigerian Stock Exchange All Share Index (NSE-ASI) depreciated by 2.89 percent, from 30,833.56 basis points as at March 31, 2019, to 29,966.87 basis points as at June 30, 2019.
The Market Capitalisation however appreciated by 13.98 percent, from N11.59 trillion as at March 31, 2019, to N13.21 trillion as at June 30, 2019, following the listing of MTN Nigeria.
The value of investments in Treasury bills and FGN Green Bond increased by N1.06 billion (0.36%) and N3.62 billion (1.23%), respectively, while investments in FGN Bonds, FGN Sukuk and Agency Bonds decreased by N19.93 billion (6.76%); N8.01 billion (2.72%) and N140 million (0.05%), respectively.
The reduction in the value of the bond was due to coupon payments and reallocation to other asset classes.
