Concentration of Assets Under Management in FI Products

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Thursday, December 12, 2019 / 09:48 AM / by FBNQuest Research / Header Image Credit: National Pension Commission (PenCom); FBNQuest Capital Research

                                                                                 

The assets under management (AUM) of the regulated pension industry increased by 16.1% y/y in October to N9.81trn (US$32.0bn), and by 2.4% m/m. They represent just 7.7% of 2018 GDP. This coverage lags peer emerging markets because the Nigerian industry, dating from 2004, is one of the newest.

 

The latest figure for Kenya is 14.0% in December 2018, and its asset structure is diverse: 39.4% of the total in government paper, 19.7% in real estate and 17.3% in listed equities. The focus of Nigerian PFAs is concentrated on FI products.


Their holdings of FGN paper totaled 69.5% of AUM in October, compared with 70.9% one year earlier. This masks, however, a shift in their exposure to NTBs, the share of which rose from 19.6% to 22.8% of the total in the period.

 

The PFAs are core participants at the monthly auctions held by the Debt Management Office. Their holdings of FGN bonds at end-October represented 47.3% of the stock of the instruments at end-June.

 

For the first time in three months, both sales and the total bid were the strongest for the long bond (Apr '49) at the auction in November. It is generally seen as the favourite of the PFAs for the matching of their assets with their liabilities.

 

AUM of PFAs, Oct 2019 (% shares)

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Sources: National Pension Commission (PenCom); FBNQuest Capital Research

 

The proportion of AUM invested in domestic equities has declined over the past 12 months from 7.1% to 4.9%. By way of providing colour, we note that the NSEASI fell by 18.8% over the same period.

 

Politicians and other interested parties like to suggest alternative investment strategies. Although well-meaning, this overlooks the principal function of the PFAs to maintain the value of their stakeholders' pensions for retirement.


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