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Many Pension Fund Administrators (PFAs) may be moving to reduce allocation of assets under management to Federal Government securities as a result of declining yields.
PFAs investment in FGN securities was valued at N5.589trillion or 70.37percent of the N7.943trillion total pension assets. Of the amount, N3.861trillion was invested in FGN Bonds while N1.659 trillion was invested in Treasury Bills (T-Bills).
In the trading week to May 25, average T-Bill yield increased by 99basis points (bps) to close at 13.3percent. Yield on 91-day T-Bill went up 51bps to 12.9percent last week, 182-day was up 113bps to 13.1percent, and the 364-day was up 134bps to 13.9percent.
On the flip side, average bond yield inched lower by 5bps to end the review week at 13.4percent. As at Monday, May 28, 2018, the FGN bond market was fairly active and yields contracted for several maturities across the curve.
Analysts believe sentiment in the fixed income (FI) space is tied to the stance the Central Bank of Nigeria (CBN) takes regarding fiscal paper supply.
Though the role of the PFAs in local debt markets remains pivotal, if the industry is to realise its full potential, forward-looking leadership from the regulator and new products to extend coverage across the economy are required.
Recently, the National Pension Commission (PenCom) replaced the “one size fits all” investment structure for PFAs with the Multi-Fund Structure (MFS) regulation which considers for age or risk profile of such contributors.
FBNQuest in a recent note agreed that the decline in yields on FGN paper since mid-2017 could lead to a change in asset allocation by PFAs; adding that “the share of Asset under Management invested in equities has risen but we are not witnessing a sea-change.”
The industry’s holdings of FGN paper which amounted to 70.4percent of their AUM in March is less when compared with 72.8percent one year earlier.
Other analysts say a sea change in asset allocations by PFAs may take more time o materialise.
“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.
Iheanyi Nwachukwu
