PENCOM August 2021 Report: Fixed Income and More Fixed Income


Friday, October 29, 2021 / 10:55 AM / by FBNQuest Research / Header Image Credit: iStock


PenCom's latest monthly report tells us that the assets under management (AUM) of the regulated pension industry increased by 13.7% y/y to NGN12.90trn (USD31.1bn) at end-August and by 0.9% m/m. FGN debt securities accounted for 64.3% of the total. Once we add corporate and state government paper, we find fixed-income exposure equivalent to 72.4% of the industrs AUM at end-August. This is a highly skewed allocation of assets in any universe, for which some explanations are warranted.


The share of domestic equities rose from 4.8% to 6.6% of AUM over the twelve months, and members' holdings by 55% to NGN847bn. Over the same period the all-share index (ASI) at the NSE also rose by 55%, indicating little, if any shift by the PFAs into domestic equities. Those who are not fresh arrivals in the market will remember well the beating the PFAs took from the stock market crash of 2008/09.


The ASI moved into positive territory ytd at the start of this month but the gain of 4.2% in almost ten months is unexciting. There is no narrative of good growth and consumer spending to interest the investor. However, a handful of listed companies, banks above all, do pay generous dividends.


The holdings of FGN paper are mostly the bonds, which represented 60.3% of total AUM at end-August. Investors have witnessed a sharp widening of yields following the anomalous Q4 '20. The driver has surely been the huge deficit financing requirement of NGN5.60trn in the 2021 budget (before the passage of the supplementary by the National Assembly).


The proposed 2022 budget offers little respite, projecting a deficit of NGN6.26trn. This compares with NGN6.45trn for this year including the supplementary and sets NGN2.51trn as the domestic borrowing target. 


The PFAs are the core players at the monthly auctions by the Debt Management Office (DMO). They hold 58.7% of the entire stock of the bonds (NGN13.25trn at end-June).


The average value of a retirement savings account (RSA) at end-August was NGN1.08m, unchanged from the previous month.


Just NGN184m was invested at end-August in the newest RSA fund (no V), which has been created for micro pensions for the self-employed and SMEs. It has been in operation since January '20.  There may well be a case for a new marketing initiative to tap this huge market. 

AUM of PFAs, Jul 21 (% shares)

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

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