Pension Fund Administrators (PFAs) invested only N734.515billion or 9.25percent of record N7.943trillion total pension fund Asset under Management (AuM) in domestic ordinary shares, according to the National Bureau of Statistics (NBS) data for the first-quarter (Q1) of 2018.
INVESTOR check shows investment in FGN Bonds is the highest with percentage of 48.61percent of the total pension fund assets and closely followed by Treasury Bills (T-Bills) with 20.89percent weight and domestic ordinary shares with 9.25percent weight while agency bonds has the least with 0.07percent weight. PFAs invested N60.805billion in foreign ordinary shares.
According to the NBS data, PFAs investment in FGN securities is valued at N5.589trillion or 70.37percent of the total pension assets; of which N3.861trillion or 48.61percent is invested in FGN Bonds while N1.659trillion or 20.89percent is invested in Treasury Bills.
PFAs invested N5.796billion or 0.07percent is invested in Agency Bonds such as those of the Nigerian Mortgage Refinance Corporation (NMRC) and Federal Mortgage Bank of Nigeria (FMBN); N55.565billion or 0.70percent of the total pension fund assets under management is invested in Sukuk Bonds; while N8.016billion or 0.10percent of the total pension fund assets is invested in Green Bonds.
In medium-to-long term, a major trigger for equities is the recent multi-fund structure regulation to PFAs, which is expected to increase their equity holding significantly from the current levels.
The Multi-Fund Structure (MFS) regulation by the National Pension Commission (PenCom) replaces the “one size fits all” structure that puts all active contributors into one Retirement Savings Account (RSA) Fund without consideration for age or risk profile of such contributors.
The NBS pension asset and membership data for Q1 show that participants within the age distribution 30-39years have the highest percentage composition closely followed by participants within the age bracket of 40-49years and 50-59years while participants above 65years have the least percentage composition.
Also in Q1’18, Pension Fund Administrators invested N161.426billion or 2.03percent of the total Asset under Management in State Government Securities; while N390.844billion or 4.92percent of total pension AuM is invested in Corporate Debt Securities –details of which are: N384.77billion or 4.84percent in Corporate Bonds and N6.067billion or 0.08percent in Corporate Infrastructure Bonds.
Other assets where PFAs invested are: Supra-National Bonds (N7.36billion or 0.09percent) and Local Money Market Securities (N651.733billion or 8.20percent) which shows Banks (N577.600billion or 7.27percent) and Commercial Papers (N74.133billion or 0.93percent).
Further check on the NBS data showed PFAs invested N19.224billion or 0.24 percent of total AuM in Mutual Funds; Real Estate Properties (N219.242billion or 2.76percent); Private Equity Fund (N27.586billion or 0.35percent); Infrastructure Fund (N7.989billion or 0.10percent); while N73.153billion or 0.92percent are held in Cash and Other Assets.
“It is unlikely that the implementation of the MFS framework will have an immediate impact on the equities market, especially with the 6 months transition period provided for PFAs, to restructure their portfolios in accordance to the framework”, according to United Capital Research analysts in their May 29 note to investors.
While justifying their outlook, the analysts said that “By the provision of the Multi-Fund Structure (MFS) framework –comprising of four Fund types, differing by age and risk profile –for PFAs, set to take off by July 1st, 2018, our analysis showed that 11.4percent and 1.2percent RSA funds, qualified to be classified into Fund I-III and Fund IV, are currently invested in variable income instruments (Equities, Mutual Funds, REITS, and Private Equity Funds) respectively.”
“Based on MFS, PFAs will have a minimum exposure of 10percent for Fund II (default for age 18-49) and 5percent for Fund III (default for age 50+ except retirees) to variable income assets. If this minimum is strictly followed and assuming no request is made for Fund I (strictly by request), our analysis indicates that PFAs current exposure to Fund II and III is already in line with the minimum requirement”, according to United Capital analysts.
The multi-fund structure is a new system of fund management that allows the splitting of the RSA ‘Active’ fund into three different funds; Fund I, Fund II and Fund II. The ‘Retiree’ fund remains and it is called Fund IV.
There is increasing investor’s preference for equities amid declining fixed income yields. Yields on fixed income securities have fallen dramatically this year as the Central Bank of Nigeria (CBN) shows commitment to single-digit inflation.
“The decline in yields on FGN paper since mid-2017 could lead to a change in asset allocation by PFAs. The share of Assets Under Management (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,” the Gregory Kronsten-led team at FBNQuest Research had noted.
According to NBS, “The Pension Asset and RSA Membership Data Q1 2018 reflected that 7,975,976 workers are registered under the pension scheme compared to 7,823,911 registered workers in fourth-quarter (Q4) of 2017 while the Pension Fund Asset under Management as at Q1 2018 stood at N7.943trillion as against N7.515trillion in Q4 2017.”