Little Change in PFAs’ Asset Allocation

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The assets under management (AUM) of the Nigerian regulated pension industry increased by 23.7% y/y in February to N7.79trn (US$25.5bn). They are growing at a reasonable rate yet, at just 6.9% of 2017 GDP, are running well behind many emerging markets. 
Nigeria was relatively late (2004) in introducing legislation creating a sound structure for regulated pensions. Strong and forward-looking leadership has not always been forthcoming from the regulator, so we have to view its target of 30% coverage of the workforce by 2024 as ambitious.
  • The industry’s holdings of FGN paper amounted to 69.7% of their AUM in February, compared with 72.3% one year earlier. The beneficiary has been domestic equities, the share of which gained 1.9% over the 12-month period.
  • The role of the PFAs in local debt markets remains pivotal. Their holdings of FGN bonds at end-February represented 45.5% of the stock of the instruments at end-December. 
  • PenCom’s latest data do not point to a surge of investment in domestic equities. The NSEASI rose by 71.1% in the 12 months to end-February while AUM in the asset class increased by 54.8% over the same period.
  • The decline in yields on FGN paper since mid-2017 could lead to a change in asset allocation by PFAs. The share of AUM invested in equities has risen but we are not witnessing a sea-change. The generally average results of listed companies other than tier-one banks militate against such a change. 

Sources: National Pension Commission (PenCom); FBNQuest Capital Research

  • We understand that conversations are taking place between the FGN and the PFAs to persuade them to invest in priority infrastructure projects through an SPV structure. Investors require attractive terms relative to those with exposure to other asset classes.  
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