Thursday, April 22,2021 / 11:39 AM / byFBNQuest Research / Header Image Credit: THISDAY

PenCom'slatest monthly report tells us that the assets under management (AUM) of theregulated pension industry increased by 16.6% y/y to NGN12.25trn (USD29.9bn) atend-February yet declined by -0.4% m/m. The commission explains the rare,albeit small, decline on a marked to market basis as the result of fallingprices for some fixed-income securities in identified funds. FGN debtsecurities represented 65.6% of the total at end-February. When we addcorporate and state government issuance, we find fixed-income exposureequivalent to 73.7% of the industry's AUM. For whatever reason, the pensionfunds are wary of taking sizeable positions in other assets such as realestate, private equity and infrastructure funds.

The share of domestic equities rosefrom 5.1% to 7.0% over the twelve months, and members' holdings by 61.1% toNGN857bn. Over the period the all-share index (ASI) increased by 51.8%,indicating a shift in allocation in addition to price gains in the market. Thismomentum has been lost, however, as fixed-income returns have recovered fromthe lows that fuelled the surge on the bourse in Q4 '20.

The holdings of FGN paper arepredominantly the bonds, which represented 59.9% of total AUM. They areessentially the only game in town. Investors have enjoyed a very healthy yieldpick-up since the start of the year and may reasonably expect a little more ofthe same in view of the huge deficit financing requirement this year.

The Debt Management Office has raisedNGN910bn from bond auctions in four months (including non-competitive bids frompublic agencies). It is on schedule to raise its domestic funding target ofNGN2.34trn this year. Yet it knows that it must keep domestic investors onsidesince the offshore portfolio community has been hit hard by the externalpayments pipeline.

Over the same 12 months the share ofNTBs has collapsed from 13.0% to 5.5%. We may see the reversal of this trend,however, judging from a NGN7bn rise in holdings in February.  Returns arerecovering for the NTBs as well as the bonds: for the 364-day instrument theyhave soared from below 1% in December to 8%. At the long end of the bond curve,they are roughly back at levels seen 12 months ago.

The average value of a retirementsavings account (RSA) at end-February was NGN1.03m, unchanged from the previousmonth.

Just NGN99m was invested atend-February in the newest RSA fund (no V), which has been created for micropensions. It has been in operation since January '20.

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