January 21, 2021 / 08:50 AM / By FBNQuest Research /
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Data from the regulator tell us that assets under management (AUM) of the pension industry increased by 23.0% y/y to NGN12.29trn (USD31.3bn) in November, and by 2.0% m/m. The asset mix remains heavily concentrated in FGN securities, which accounted for 66.2% of the total. Pencom's Kenyan counterpart, the Retirement Benefits Authority, shows total AUM of KES1.32trn (USD12.4bn) at June '20: there was sizeable exposure to immovable property (18.6%) and listed equities (14.2%) alongside the largest share in government securities (44.0%). Fund managers in Nigeria will have their reasons for paying limited attention to assets such as real estate, private equity and infrastructure funds.
The corporate debt market is relatively small although it has grown in recent months with some high-profile new issues. Holdings rose by 14.9% y/y to NGN687bn in November.
The holdings of FGN paper are predominantly the bonds, which represented 60.0% of total AUM. Over 12 months the share of NTBs has collapsed from 21.2% to 5.2% as the returns have tanked. The indirect trigger was the CBN circular in October '19 that shut the PFAs and other domestic nonbank players out of the market in its OMO bills.
The returns on the FGN bonds are well under water when we allow for headline inflation running close to 16% y/y.
The share of domestic equities picked up from 5.4% to 6.4% over the twelve months, or by 47.6% to NGN791bn in holdings. Over the period the all-share index increased by just 29.8% so we have some evidence for the theory that the surge on the stock market in Q4 '20 was driven in part by changes in asset allocation by domestic investors.
We should remember too that retail players account for more than 40% of domestic investor transactions. We think that this shift in allocation by the PFAs will be evident (and stronger) when the Pencom report for December is available.
The average value of a retirement savings account (RSA) at end-November was NGN1.02m, compared with NGN963,000 three months earlier.
Just NGN71m was invested at end-November in the newest RSA fund (no V), which has been created for the micro pensions of the informal sector and SMEs. The fund has been in operation since January '20 and could be transformative if the industry finds the best marketing strategy.
AUM of PFAs, Nov 2020 (% shares)
Sources: National Pension Commission (PenCom); FBNQuest Capital Research