Connect with us

Pension

Pension Funds Take Advantage of High Interest Rates in Nigeria, Invest N9.9 Trillion in Federal Government Debt Instruments

Published

on

pension funds - Investors King

Since the Central Bank of Nigeria (CBN) started raising interest rates to curb the rising inflation rate and ease economic hardship on citizens, investors have jumped on fixed-income investments to take advantage of the 600 basis points jump in borrowing cost.

As a result of the CBN’s actions, yields on one-month months rose to 7.56 percent in February from 3.57 percent in May 2022.

The interest rate on the Federal Government’s 3-year Savings Bonds also rose to 11.04 percent in February from 8.93 percent in May 2022.

Pension Funds in Nigeria have taken advantage of this high-interest rate regime, investing N9.9 trillion in Federal Government debt instruments (securities) in February 2023, a 16.5 percent increase year-on-year from N8.5 trillion in February 2022.

The Federal Government securities that the Pension Funds invested in include FGN Bonds, Treasury Bills, Agency Bonds, Sukuk, and Green Bonds.

The Nigeria Pension Commission (PenCom) reported a steady rise in Pension Funds’ investment in FG securities since the first quarter of 2022, with a slight dip in Q1 2023 by 3.1 per cent quarter-on-quarter (QoQ).

However, Q2 2023 saw a QoQ growth of 5.9 per cent, with the investment value reaching N9.007 trillion. The investment value increased further by 2.1 per cent QoQ to N9.192 trillion in Q3 2023, and in Q4 2023, the investment value rose QoQ by 2.7% to N9.644 trillion.

Although pension fund investment in government securities fell marginally by 1.0 per cent, month-on-month (MoM), it rose by 4.2 per cent, MoM, to N9.8 trillion in February 2023.

The Pension Funds have seen this high-interest rate regime as an opportunity to increase their returns on investment, which ultimately benefits the pensioners.

Commenting on this development, analyst and Head of Investment and Research at Fidelity Securities Limited, FSL, Mr Victor Chiazor, said: “The rise in PFAs’ investments in Federal Government securities over the last one year was triggered by the high interest rate regime following the increase of the MPR by the CBN to tame rising inflation.

“We expect PFAs investment in Federal Government securities in the first quarter of the year to continue to grow but investments in equities will be based on the yield environment, performance of the equities market during the year and the post political dynamics in the year.”

In his own part, analyst and Managing Director/CEO of APT Securities and Funds Limited, Mallam Garba Kurfi, said: “The Investment in FGN Bonds by PFAs is necessary because of its availability and risk free when compared with the other securities. “Most aged people prefer their money to be invested in less risky assets; more than N7.9 trillion in the Nigerian financial market were invested into bonds. There are no available instruments to invest like bonds with high interest rates.

“There is a need for more financial products that can give alternatives and provide high returns like Bonds in the financial markets in order to attract pension funds investments.”

 

 

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Continue Reading
Comments

Pension

Pension Funds Boost Real Estate Investments to N1 Trillion in 2023

Published

on

Housing - Investors King

Pension funds have invested a record N1 trillion in the real estate sector in 2023.

According to Oguche Agudah, CEO of the Pension Fund Operators Association of Nigeria (PenOp), this surge in investment shows the real estate sector’s viability as a strategic investment option for pension funds.

“Pension funds have consistently been investing in real estate and REITs over the past few years, and these investments provide a stable return and help diversify the pension fund portfolios,” Agudah said.

Real Estate Investment Trusts (REITs), which pool capital from investors to earn dividends from real estate assets, have been a significant beneficiary of this trend.

In 2023, N1 trillion out of a total Assets Under Management (AUM) of N18.36 trillion was channeled into real estate and REITs.

This is a notable increase from 2022, where N943.61 billion was invested from an AUM of N14.99 trillion.

The trend over the past few years shows a consistent commitment to real estate investments.

In 2021, N957.27 billion was invested from an AUM of N13.42 trillion, while 2020 saw N958.35 billion invested from an AUM of N12.31 trillion.

Going back to 2019, pension funds invested N972.83 billion out of an AUM of N9.58 trillion, marking one of the highest allocations to real estate and REITs.

Dave Uduanu, managing director and CEO of Access Pensions Limited, highlighted the attractiveness of real estate investments for pension funds.

“Pension managers are interested in investing in real estate, but it has to be well structured,” Uduanu said.

He said these investments provide competitive returns and help reduce Nigeria’s infrastructure deficit.

The regulatory landscape has also evolved to support greater investments in real estate. The regulation of equity contributions for residential mortgages, which began in December 2023, has facilitated more substantial investments in this sector.

Data from the first quarter of 2024 shows that 2,971 pension contributors via RSA have signed up for equity contributions for residential mortgages, with N29.2 billion already allocated.

Despite the significant allocation to real estate, a chief investment officer from one of Nigeria’s leading PFAs noted that there is still room for greater investment in infrastructure, including real estate.

“One thing we can do better is on visible impact. One way people can truly feel the tangible impact of their pensions is in the area of infrastructure investments, and real estate is key here,” the officer stated.

The growing investments in real estate by pension funds are a testament to the sector’s potential and the strategic vision of pension fund managers.

Continue Reading

Pension

PFAs Posted Decent Growth – Coronation Economic Note

Published

on

pension funds - Investors King

According to the latest monthly report released by Nigeria’s Pension Commission (PENCOM), the assets under management (AUM) of the regulated pension industry increased by +26.2% y/y to N19.7trn.

Meanwhile on an m/m basis, the AUM decline marginally by -0.5%.

This marks the first decline since September ’22. Notably, FGN debt securities accounted for 62% of the total AUM in March ’24. Meanwhile, other asset classes such as private equities, real estate, and infrastructure funds, accounted for 0.4%, 1.4%, and 0.8% of total AUM, respectively.

Total FGN debt securities held by the Pension Fund Administrators (PFAs) increased by +19.7%
y/y but declined marginally by -1.4% m/m.

Specifically, we note that the FGN bond instruments held by the PFAs increased by +17.2% y/y to N11.5trn, but declined by -2.4% m/m, on the back of a 10-year tenure FGN bond maturity (N719.9bn). The FGN bonds account for 58% of the total AUM.

FGN bonds remain attractive due to its lower risk profile and elevated yields. It is worth noting that the average FGN bond yield increased by +219bps m/m as at end-March ‘24.

The PENCOM report shows that NTBs held by PFAs grew by +120% y/y and increased by +42.5% m/m to N407.6bn in March ’24. We note that the average NTB yield increased by +250bps m/m as at end-March’24.

This asset class accounted for just 2.1% of the total AUM in the same month.

Meanwhile, State government securities held by the PFAs increased by 64.1% y/y to N266.2bn in March ‘24.

It is worth highlighting that domestic equity holdings surged by 99.6% y/y and 8.7% m/m to N2.1trn in the same period, accounting for 10.6% of the total AUM in March ‘24 compared with 9.7% in February ’24. The NGX-all-share index (NGX-ASI) rose by +90.6% y/y and +4.6% during the same period.

Furthermore, YTD (28-March ’24) return on index rose by +18.1% to close at 39.8% from 33.7% in February ’24.

Recently, the market has shown a bearish trajectory as the NGX-ASI declined by -6.1% m/m as at end-April ‘24, partly, on the back of relatively weak corporate earnings amid inflationary conditions. Given expectations of higher yields in the fixed income market on the back of continuous tightening or a hold stance of the CBN at the next MPC meeting, PFAs are likely to reallocate a greater portion of pension assets to fixed income securities.

According to PENCOM, the total pension contributions since inception remitted to the Individual Retirement Savings Account (RSA) increased by +17.3% y/y to N9.9trn as at end-December ‘23 compared with N8.5trn recorded as at end-December ‘22. Remittance from the public sector accounts for 52%, while private sector accounts for 48% of the total pension contributions.

This can be partly attributed to improvement in the efforts to expand pension coverage.

Notably, PENCOM added a total number of 8,927 micro pension contributors in Q4 ’23 bringing the total number of registered MPCs in the Micro pension plan from inception to 114,382 as at end-December ’23 from 89,327 as at end-December ’22.

Continue Reading

Pension

Nigeria’s Pension Fund Value Plummets by 29% to $14.39bn Amid Naira Depreciation

Published

on

pension funds - Investors King

Nigeria’s pension fund value has declined by 29% to $14.39 billion in January 2024.

This drop attributed primarily to the ongoing depreciation of the naira against the dollar represents a contrast from the $20.41 billion recorded in December 2023.

The latest unaudited report on the pension funds industry portfolio revealed that the conversion rate of the naira to the dollar played a pivotal role in this decline.

In January, the naira was converted at a rate of N1,356.88/$, a significant deviation from the N899.39/$ rate observed in December.

This depreciation trend in the naira has been persistent since June 2023, following adjustments made by the Central Bank of Nigeria.

The continued weakening of the national currency in 2024 further exacerbated the erosion of the pension fund’s value when measured in dollar terms.

While the dollar value of the pension fund experienced a substantial downturn, in naira terms, the total assets under the Contributory Pension Scheme witnessed an increase to N19.53 trillion from N18.36 trillion at the end of 2023.

A significant portion of these assets, estimated at N12.14 trillion, was invested in Federal Government securities, reflecting a strategy to navigate the challenging economic landscape.

Amidst concerns over the impact of naira depreciation on pension funds, stakeholders have emphasized the need for prudent financial management and diversification of investment portfolios to mitigate risks associated with currency fluctuations.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending