PFAs Increase Investments in FGN Bonds by N935 Bn to N6.64 Trn in 9 Months…

Naira Falls As Reserves Fall To $38.8 Billion
Naira Falls As Reserves Fall To $38.8 Billion

Freshly released report on pension fund assets by National Pension Commission (NPC) showed that the total value of pension assets for the first nine months of the year rose by 10.90% to N11.57 trillion in September 2020.

According to the report, most of the pension fund assets were invested in FGN bonds. Hence, the share of FGN bonds to total assets climbed to 57.41% (or N6.64 trillion) in the period under review, from a 54.70% (or N5.71 trillion) it printed in January 2020.

However, PFAs’ investments in T-bills declined sharply year to date (YTD) by 102.90% to N780.57 billion as at September 2020 from N1.58 trillion recorded in January 2020 as treasury bills yields plummeted to ridiculously below single-digit.

Given the reduction in the weight of FGN Securities to the total assets (it fell to 65.29% in Sept.

2020 from 70.96% in January 2020) as money flow to T-bills dropped, we saw Pension Fund Administrators (PFAs) investment preference drift towards Local Money Market Securities (LMMS) as total funds invested in this investment category rose by 70.34% to N2.01 trillion in September 2020 (lifting its share of the total assets to 17.37%), from N1.18 trillion in January 2020 (or 11.31% of total assets).

Also, investment in LMMS showed that more pension fund assets were invested in Banks (which include Open Market Operations and DMBs fixed deposits) than in commercial papers.

Total invested fund placed with banks as a percentage of total pension fund assets stood at 15.09% (or N1.75 trillion) in September 2020, rising from 10.13% (N1.06 trillion) in January 2020 while investment in commercial papers,  onstituting 2.27% of investment in LMMS, increased to N0.26 trillion from N0.12 trillion.

Similarly, we saw Cash and Other Assets which constituted 1.29% (or N0.15 billion) of the total pension fund assets in September 2020 rise from 0.28% (or N29.29 billion) in January 2020.

However, funds invested in Real Estate Properties as a fraction of the total pension fund assets dropped to 1.29% (or N0.15 trillion) from 2.08% (or N0.22 trillion) in the period under review.


Investments in Sukuk and Green Bonds were relatively low as their respective shares of allocated pension assets stood at N107.57 billion and N13.05 billion in the month under review, rising from N84.80 billion and N15.07 billion respectively in January 2020.

Meanwhile, pension fund assets invested in the domestic equities market moderated to N0.59 trillion in September 2020 from N0.60 trillion in January 2020; thus, reducing the weight of total pension funds in local equities market to 5.06% from 5.71%.

Nonetheless, the equities market continued to receive some “patronage” from “RSA FUND II” as its total invested funds stood at N385.10 billion in September 2020, from N395.80 billion in January 2020.

Elsewhere, the West Texas Intermediate (WTI) crude price rose strongly by 5.39% w-o-w to USD53.57 a barrel gave the 1.91% w-o-w rise in US crude oil input to refineries to 14.65 mb/d as at January 8, 2021 (however, It declined y-o-y by 13.69% from 16.97 mb/d as at January 10, 2020).

Also, the U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) moderated by 0.66% w-o-w to 482.21 million barrels as at January 8, 2021 (albeit, inventories rose by 12.53% y-o-y from 482.21 million barrels as at January 10, 2020).

We note that the increased investment by PFAs in Bank Placements and FGN Bonds was essentially to take advantage of the relatively high yields in OMO and bonds markets.

Hence, we saw the demand pressure for T-bills spill over to the bonds market as CBN kept the focus on expansionary monetary policy aimed at stimulating economic growth. In 2021, we do not envisage dramatic upside in bond yield but a marginal lift from the current position, as the need for CBN to stabilize FX and rising inflation (it hits 15.75% in Dec) may have become pressing.