We learn from PenCom's latest monthly report that the assets under management (AUM) of the regulated pension industry increased by 17.9% y/y to NGN12.30trn (USD31.2bn) at end-January, and were flat m/m. The asset mix remained heavily skewed towards FGN securities, which represented 65.9% of the total. The corporate debt market has grown from a small base with some high-profile new issues. Holdings rose by 28.2% y/y to NGN836bn in January. When we add state government and supranational issuance into the mix, we find fixed income exposure equivalent to 73.8% of the industry's AUM. 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%).
The holdings of FGN paper are predominantly the bonds, which represented 59.6% of total AUM. This was an increase of four percentage points in just one month. Over 12 months the share of NTBs has collapsed from 15.2% to 5.4%.
The share of domestic equities rose from 5.7% to 7.5% over the twelve months, and members' holdings by 54.6% to NGN920bn. Over the period the all-share index (ASI) increased by 47.0%.
We have seen some sharp market movements. The ASI was still in negative territory ytd at the start of October '20 and closed the year with a thumping gain of 50.0%, making it the best performing index.
One driver was the noted shift by PFAs into equities as returns on first NTBs and then FGN bonds crashed in November and December. At that point, the dividends paid by a good number of blue-chip listed companies offered a better return than FGN paper.
While we have a plausible explanation for the surge on the ASI in Q4 '20 we now have to prepare for the consequences of a retracement in yields on FGN paper. For the 364-day NTB the yield has recovered from below 1% in December to above 6%, and for the longest maturity FGN bond (Mar '50) from less than 7% to about 11.5% over the same timeframe.
The average value of a retirement savings account (RSA) at end-January was NGN1.03m, marginally higher than the previous month.
Just NGN81m was invested at end-January in the newest RSA fund (no V), which has been created for micro pensions. It has been in operation since January '20.
AUM of PFAs, Jan 2021 (% shares) Total: NGN12.30trn
Sources: National Pension Commission (PenCom); FBNQuest Capital Research