Premium Pension retirement savings account (RSA) holders have a good reason to smile this year. The pension fund administrator (PFA) had the best performing retirement savings fund in Nigeria in the first five months of the year with a year to date return of 6.18 percent.
Behind Premium Pension was Crusader pensions (5.97%), Stanbic IBTC pension (5.86%), ARM Pension (5.64%) and Legacy Pension funds (5.24%) whose strong performance propelled the PFAs to be among the five best performing retirement savings fund in the country.
The performance analysis was done using the RSA unit price returns of 12 of the largest pension funds in Nigeria between December 31st 2017 and June 1st 2018.
A pension fund is a pooled-contribution from pension plans organized by employers or organizations to provide retirement benefits for their employees or members. Pension funds are the largest investment blocks in most countries and often dare key players in the stock and bond markets where they invest. These funds are managed by pension fund administrators all of which are licenced by the national pension commission or PENCOM.
There are currently 21 pension fund administrators in Nigeria. This number of registered PFAs has dropped over the years from 24 in 2011 to 21 in 2016. Others not included in this analysis due to unavailability of RSA unit price data include AXA Mansard Pension, First Guarantee Pension Ltd, Investment One pension managers, Leadway Pension, NFP Pension Ltd, Pal Pension, Radix Pension Managers, Sigma Pension and Trust Fund Pension.
Other pension managers that lagged the high flyers include; Oak Pension (4.9%), Future Unity Glanvils Pensions (4.89%), Aiico Pension (4.80%), Anchor Pension Managers (4.62%), APT Pensions (4.48%) and NLPC pension Fund (4.3%).
On the reason why some pension fund managers outperformed others; Henry Ogbuaku, group head, asset management at GDL Asset Management Ltd told BusinessDay that there are some key factors which could have led to the disparity in their fund performance.
One of them is the capacity of the managers, in terms of their understanding of the market. It is also important to know what constitutes their portfolio. Based on the Security and Exchange Commission (SEC) regulation, each fund manager is supposed to structure their portfolio in a particular way.
For example, there is a limit to the proportion of their asset under management (AUM) that goes into equity and a certain amount going into fixed income.
“The ability of the fund managers to understand each of those markets is an important factor,” Ogbuaku said.
It also depends on their investment strategy, that is, how they choose to classify their bond and equity portfolio will affect their performance. If they are bullish on fixed income or equity, it will affect their performance differently, BusinessDay gathered from another source who pleaded anonymity.
Ogbuaku added that another factor has to do with the size of their portfolio. For example, if a fund administration has N10 billion in assets under management (AUM), they may be able to negotiate a higher fixed income rate than another who has just N2 billion naira AUM.
According to the Pension Reform Act (2014), an employee can transfer his Retirement Savings Account (RSA) from one Pension Fund Administrator (PFA) to another. The transfer should not be more than once in year.
Analysts expect that as fund administrators await the formal commencement of the transfer window, they will strategically position themselves to be attractive by providing high return on investment and good customer service.
According to Ogbuaku, “the pension reform may lead to mergers. The fund administrators that are not performing well may be compelled to look for other fund administrators that can absorb them. If it is properly implemented, it could lead to mergers in the industry which will shrink the number of PFAs even further.”
He also added that, with this reform, many of the PFAs will become more efficient as the possibility of pension account transfers drives competition in the industry.
