Tuesday, July 28, 2020 / 09:12 AM / By FBNQuest Research / Header Image Credit: FBNQuest

Wesee from Pencom's latest report that the assets under management (AUM) of theregulated pension industry in Nigeria rose by 17.0% y/y in May to N10.80trn(US$27.9bn). The share of domestic equities in AUM peaked at 16% in 2007, iebefore the blowout on the NSE, and has since fallen below 5%. The asset mix isskewed towards government debt. In contrast, the Retirement Benefits Authorityin Kenya shows a more diversified industry: 39.4% of AUM in governmentsecurities, 19.7% in immovable property and 17.3% in quoted equities atend-2018.

The PFAs' holdings of FGN paper stood at 66.7% of AUM in May, littlechanged on the month. They were principally positions in FGN bonds (55.4% ofthe total). The dramatic story to tell, however, has been the fall in the shareof NTBs by 36bps m/m and by 1,101bps y/y.

This followed the crashing of yields on NTBs following CBN circulars inOctober that halted the access of domestic non-bank players (notably the PFAs)to its open market operations. Fund managers initially favoured the NTBs asalternative investments until the yields buckled.

The question becomes whether, now that the PFAs have increased their bidfor FGN bonds, those yields go further the same way and, if so, how the fundmanagers respond.

The average value of a retirement savings account (RSA) at end-May wasN926,000, compared with N811,000 one year earlier. The latest report fromPencom also shows that just N25m was invested in those funds dedicated to thenew micro pensions for the informal sector and firms with less than threeemployees out of a total of N8.35trn for RSAs. We hope that the selling ofthese new products gathers momentum for the sake of the industry and in orderto expand the tax net in Nigeria.

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