Little Change to PFA Asset Allocation; AUM Rose by 0.8% MoM in September 2021


Thursday, November 11, 2021 / 09:20 AM / By FBNQuest Research / Header Image Credit: FBNQuest


Our chart below, based on PenCom's latest monthly report, shows the distribution of the pension industry's assets under management (AUM) by asset class. We see from the data that AUM rose by 0.8% m/m and 12.4% y/y to NGN13trn (USD31.3bn) as at end-September. FGN debt securities declined by -0.8% m/m to account for 63% of the total. When we include corporate and state government issuance, the fixed-income exposure is equivalent to 71.4% of the industry's AUM at end-September. For Kenya, the Retirement Benefits Authority puts the share of government securities at 44.1% at end-June '21 and listed equities at 16.9%.


For Nigerian pension funds, the share of domestic equities rose slightly from 5.1% to 6.7% over the twelve months, and members' holdings by 49% to NGN874bn. The all-share index (ASI) rose by 50% over the same period, implying a modest shift by the PFAs into domestic equities.


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Unlike their counterparts in Kenya whose share of immovable property is at 16.7%, Nigerian pension funds have lower exposures to real estate and infrastructure funds. As at end-September, funds allocated to infrastructure, real estate and Real Estate Investment Trusts (REITs) accounted for 2.4% (NGN313.7bn) of the total. In its defence, PenCom disclosed that investing pension assets into infrastructure development has been limited by availability of eligible instruments in the financial market.


The pension industry's exposure to NTBs continues to trend down. The share of NTBs fell -63.6% y/y and -30.9% m/m to NGN284bn, equivalent to 2.2% of the total AUM. The corresponding figures in 2018, 2019 and 2020 were 18.0%, 23.6% and 6.7% respectively. We recall that NTB yields declined significantly as fund managers directed proceeds from their OMO bills maturities into the NTBs space – a consequence of the CBN's circulars barring domestic non-bank players from its OMO auctions in October '19.


FGN bonds accounted for 60.3% of total AUM at end-September, up from 57.4% in the year earlier perio/d. The FGN's huge deficit financing requirement of NGN5.6trn in the 2021 budget (before the passage of the supplementary by the National Assembly) has contributed to pushing up yields. We do not see this trend changing soon considering the FGN's FY 2022's proposed deficit of NGN6.3trn, of which NGN2.51trn has been set as the domestic borrowing target.


Last month, PenCom introduced a non-interest fund (Fund VI) which complies with non-interest (Shari'ah) finance principles.


AUM of PFAs, September '21 (% shares)                                                            Total: NGN13.0trn

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Sources: PenCom; FBNQuest Capital Research

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