Pension Assets Up 22% to N20.5tn, 63.3% of AUM Invested in FGN Papers

Arthur Eriye

Data from the National Pension Commission (Pencom) has revealed that over a 12-month period, pension assets grew by 22.21 per cent year-on-year, from N16.761 trillion in the first half of 2023 to N20.484 trillion in June 2024.

Also, the total assets under the Contributory Pension Scheme rose from N18.355 trillion in December 2023 to N20.484 trillion at the end of the first half of the 2024 financial year, representing an increase of 11.59 per cent.

When the assets under management (AUM), is broken down by fund type and asset class, the data revealed that as of June 2024, 63.3 per cent of AUM was invested in securities issued by the Federal Government of Nigeria (FGN).

Further analysis showed that investments in corporate debt securities accounted for 10.8 per cent of total AUM, followed by money market instruments at 9.3 per cent and 9.6 per cent in stock market.

Despite this expansion, Cowry Asset Limited stated in an email that the industry is underpenetrated, with its total AUM only accounting for 8.9 per cent of Nigeria’s gross domestic products (GDP) in 2023.

This is a significant difference from the global average of 29.4 per cent in 2020, as indicated by World Bank data.

Specifically, FGN bonds account for over 60 per cent of the total asset mix held by fund administrators over the period and up to 96 per cent of the total funds parked in FGN securities.

The report reveals that investment in FGN securities reached N12.96 trillion in June 2024, marking a substantial 19.4 per cent year-on-year growth from N10.86 trillion in June 2023.

Demand for bonds was propelled by rising yields and a high-interest rate environment, as well as the increased supply of FGN papers by the Debt Management Office (DMO) to meet the federal government’s domestic funding targets amounting to N6.12 trillion in the 2024 budget.

The Debt Management Office has raised N4.3 trillion from the sale of FGN bonds this year, or 70% of its projected local borrowings. Pension fund administrators (PFAs) kept buying FGN securities, the investment business said in its market update, even after the monetary policy rates increased by 750 basis points to 26.25 per cent in May 2024.

Analysts observed that the current attractive yield environment and generally safe and predictable returns drove the desire of pension asset managers. The study also emphasizes the strong growth in domestic ordinary share investments made by pension funds, which increased by 55 per cent year over year to N1.91 trillion.

A drive into the equities market was attributed to the robust performance of the Nigerian Stock Exchange (NGX), however, hampered by the negative market internals that have continued to buoy weaker investors’ sentiment.

During the first half of 2024, the local bourse performed well, with the ASI accelerating up 33.81 per cent year-to-date amid second-quarter-end window dressing, which resulted in N15.68 trillion worth of gains for equity investors.

On a monthly analysis, the major asset categories, such as Treasury bills, registered the highest gain in June, rising by 8 per cent month on month to roughly N400 billion, according to analysts’ updates.

Treasury instruments have benefited from the prevailing elevated yield environment due to the CBN’s restrictive monetary stance and tight market liquidity. Also, pension fund holdings in domestic equities continue to rise.

In absolute terms, the total value of the domestic equities portion increased by 4 per cent to N1.9 trillion, while FGN bonds, which make up more than half (60%) of overall pension assets, amounted to N12.2 trillion in June, implying an increase of almost N141 billion relative to the previous month.

Analysts at Cowry Asset Limited said they see the pension industry’s positive growth trajectory playing a pivotal role in Nigeria’s economic development in the mid- to long-term.

The firm attributed the sustained interest of pension managers in bond securities to the monetary policy committee’s hawkish posture and the DMO’s increased issuance of FGN paper.

“This trend is expected to continue with more allocations to federal government securities,” Cowry Asset Limited said, while experts maintained that demand will be driven by higher yields due to the elevated interest rate environment. The performance of the equities market and fixed income market is anticipated to contribute significantly to the growth of total AUM.