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Friday, June 05, 2020 / 09:20 AM / By FBNQuest
Research / Header Image Credit: FBNQuest
We
learn from Pencom's latest report that the assets under management (AUM) of the
regulated pension industry in Nigeria increased by 16.0% y/y in April to
N10.58trn (US$27.3bn), and by 2.4% m/m. The share of equities in AUM peaked at
16% in 2007, ie before the blowout on the NSE. It now stands below 5%. The
equities market took further batterings in 2018 and 2019. There has been a
recovery of sorts since mid-May although it seems that the main driver has been
the reinvestment of sale proceeds that offshore players have been waiting to
repatriate.
The PFAs' holdings of FGN paper stood at 66.3% of AUM in April, little
changed on the month. The story to tell, however, has been the fall in the
share of NTBs by 209bps m/m and by 1,080bps y/y.
This followed the crashing of yields on NTBs in response to CBN
circulars 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 they
favoured the NTBs: those yields buckled.
FGN bonds still offer double-digit returns (other than the shortest
maturities). The Debt Management Office (DMO) now has a domestic funding target
of N1.59trn because of the reallocation of earlier authorized external
borrowing. The CBN has boosted market liquidity by reducing its sales of OMO
bills, and the DMO enjoyed a highly successful auction of FGN bonds in May with
a total bid well above N400bn. That said, the doubling of FGN bond supply this
year will surely feed into higher borrowing costs.
AUM of PFAs, Apr 2020 (% shares) |
|
Sources:
National Pension Commission (Pencom); FBNQuest Capital Research |
The loss of NTBs has been the gain of the domestic money market, the
share of which has risen from 10.4% of AUM to 15.8% in 12 months, increasing by
N720bn. Bank placements have driven this strong growth.
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