Total Pension Assets Hit N12.4T as Investment Preference Drift Towards LMMS

Pension asset

A recently released report on pension fund assets by National Pension Commission (NPC) showed that the total value of pension assets rose month on month (m-o-m) by 0.41% to N12.39 trillion in April 2021 from N12.34 trillion printed in March 2021. According to the report, most of the pension fund assets were invested in FGN Securities.

However, its share of the total assets moderated to 67.15% (or N8.32 trillion) in the month under review, from a 68.96% (or N8.51 trillion) recorded in April 2021 as pension managers stood on the sidelines to see where the rising interest rates in the money and bond markets would halt before investing more funds.

Hence, the money managers invested more funds in relatively high corporate debt securities and placements with deposit money banks. Notably, interest rates moved northward in the first four months of 2021 despite CBN’s desire to maintain a dovish monetary policy plan throughout the year 2021.

Pension asset

The increase in rate was amid the apex bank’s struggle with the depreciating Naira against other foreign currencies and inflationary pressure.

As Pension Fund Administrators (PFAs) slowed down investment in FGN securities, we saw investment preference drift towards Local Money Market Securities (LMMS) as total funds invested in this space rose m-o-m by 3.58% to N1.74 trillion in April 2021 (lifting its share of the total assets to 14.04%), from N1.68 trillion in March 2021 (or 13.57% of total assets).

Total invested fund in Corporate Debt Securities as a percentage of total pension fund assets stood at 6.41% (or N0.79 trillion) in April 2021 from 5.03% (N0.62 trillion) in March 2021.

However, funds invested in Real Estate Properties as a fraction of the total pension fund assets fell marginally to 1.26% (or N0.16 trillion) from 1.27% (or N0.17 trillion) in the period under review. Similarly, we saw Cash and Other Assets which constituted 0.87% (or N107.45 billion) of the total pension fund assets in April 2021 build-up from 0.62% (or N76.01 billion) in March 2021.

Read Also:  In 2019, FAO aims to provide 32 million people with livelihoods support to keep them on their feet

Further breakdown of the N8.32 trillion FGN Securities revealed that investment in FGN Bonds gulped N7.45 trillion in April 2021, falling from a N7.67 trillion in March 2021. Also, investment in Treasury Bills plunged to N0.69 trillion in April 2021, from N0.72 trillion in March 2021.

Investments in Sukuk was relatively low as its share of allocated pension assets dropped to N79.81 billion from N85.07 billion. On the flip side, investment in LMMS showed that more pension fund assets were invested in Banks (which include Open Market Operations, OMO, and DMBs fixed deposits) than in commercial papers.

Funds invested in Banks, constituting 94.25% of investment in LMMS, rose to N1.64 trillion in April 2021 from N1.58 trillion in March 2021 while investment in commercial papers, constituting 5.56% of investment in LMMS, barely increased to N96.52 billion from N91.77 billion. Also, we saw investments in Green Bonds rose to N79.81 billion, down from N12.88 billion in the month under review.

Meanwhile, pension fund assets invested in the domestic equities market declined to N830 billion in April 2021 from N841 billion in March 2021; thus, decreasing the weight of total pension funds in the local equities market to 6.69% from 6.82% as “patronage” received from “RSA FUND II” and “RSA FUND III” dropped – total invested funds in the respective funds moderated to N564.39 billion and N121.31 billion, from N566.78 billion and N122.88 billion respectively in April 2021.

The pension fund managers were forced to stay on the sidelines given the rising yields which amounted to a capital loss for the old positions in their portfolios thus, impacting their performance negatively.

However, with the recent reversal in the upward trend in yields, we expect the PFAs to lock in more investment in FGN bonds and T-bills with the aim of disposing them at lower yield in order to book capital gain and return higher value to pensioners.