Thursday,May 14, 2020 / 10:38 AM / By FBNQuest Research / Header Image Credit: FBNQuest
Wenote from Pencom's latest monthly report that the assets under management (AUM)of the regulated pension industry in Nigeria increased by 17.9% y/y in Februaryto N10.51trn (US$27.2bn), and by 0.7% m/m. The share of equities in AUM peakedat 16% in 2007, ie before the blowout on the NSE. It now stands at little morethan 5%. The equities market took further batterings in 2018 and 2019. Evenbefore the onset of the pandemic, this year did not look transformational. Incontrast, double-digit returns are available for many fixed-income assets butnot NTBs.
The PFAs' holdings of FGN paper amounted to 67.5% of AUM in February,compared with 71.0% the previous month. The share of FGN bonds declined by126bps. The more significant trend, however, has been the fall in the share ofNTBs by 216bps m/m and by 838bps y/y.
This followed the crashing of yields on NTBs in response to CBNcirculars in October that barred domestic non-bank players (notably the PFAs)from its open market operations (OMO). As their bills issued within OMO mature,fund managers obviously have to make alternative investments. Initially theyfavoured the NTBs: those yields buckled.
FGN bonds still offer double-digit returns (other than the shortestmaturities). The Debt Management Office's issuance programme will have to beaccelerated now that it has a domestic funding target of N1.59trn this year,rather than the previous N745bn, because of the reallocation of earlierauthorized external borrowing. Liquidity in the market depending, thepossibility exists that the large increase in supply will feed into returns.
AUM of PFAs, Feb 2020 (% shares)
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Sources: National Pension Commission (Pencom); FBNQuest Capital Research |
The loss of NTBs has been the gain of the domestic money market, theshare in AUM of which has risen from 7.9% to 15.3% in 12 months, increasing byN900bn. Bank placements have driven this strong growth.
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