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Improved flexibility from PENCOM

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Friday, May 12, 2017 10:15 AM /FBNQuest Research

Despite the reported rise in pension fund redemptions sparked by job losses over the past year, the assets under management (AUM) of the regulated pension industry increased by 19.0% y/y to N6.30trn (US$20.0bn) in February.

The breakdown by asset class shows that the share of FGN securities (bonds and NTBs) rose from 66.9% to 72.4% of the total over the period while that of domestic equities narrowed from 8.6% to 7.4%. The outperformance of fixed income instruments is partly responsible.

Last month the national pension commission (PENCOM) released a memo with some amendments allowing pension fund administrations (PFAs) greater flexibility as far as their investment options are concerned.

We highlight the introduction of the RSA multi-fund structure which seeks to align investments of RSA holders’ contributions with their perceived risk appetite. There are four funds; the first applies to young contributors who are less risk adverse. This fund has a relatively high exposure to equities. The upper and lower limits allowable in non-fixed income instruments are 75% and 20% respectively.

In February, investments in infrastructure funds grew by 65% y/y, but from a very low base given that this investment vehicle accounts for less than 1% of the total asset value. 

The amendments also allow PFAs to invest in stalled government infrastructure projects. Generally, funds allocated for infrastructure projects by the FGN are not sufficient. Therefore, this should bode well for the economy. 

As PFAs begin to respond to these amendments by diversifying their investment portfolios, the proportion of FGN securities in the total mix should reduce gradually.

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