Pension Fund Administrators (PFAs) exposure in the stock market and FGN Bonds, among other securities, added N856biiion in the first half of 2024, contributing to the industry’s overall assets.
The added N856.39 billion is coming on the backdrop of macroeconomy challenges that include double-digit inflation, unstable naira at the foreign exchange, hike in Central Bank of Nigeria’s (CBN) monetary policies, among others.
The sector regulator licensed three custodians and 19 administrators to manage pension funds in Nigeria.
According to the National Pension Commission (PenCom), FGN Securities comprise FGN Bonds (HTM), Nigerian Treasury Bills (NTBs), Agency Bonds (NMRC), Sukuk Bonds and Green Bonds and data from the commission showed that PFAs’ investment in FGN Bonds opened in January 2024 at N12.14 trillion, gained N820.32 billion to close June 2024 at N12.96 trillion, while exposure in the domestic equities market stood at N1.97 trillion as of June 2024, an increase of N36.07 billion from N1.93 trillion reported January 2024.
Analysts stated that PFAs lately divested into FGN securities over a steady increase in the Monetary Policy Rate (MPR) as the apex bank sustained its stance in tackling inflationary pressure and stable naira at the foreign exchange market.
In the review period, the stock market gained N15.6 trillion in market capitalisation and 33.8 per cent in NGX ASI as investors aggressively invested in cheaper and fundamental stocks quoted on Nigerian Exchange Limited (NGX).
INSIDEBUSINESSNG gathered yield on FGN bonds, specifically FGN bonds recorded a steady increase
In light of higher MPR from the CBN, the Debt Management Office’s (DMO) FGN bond offer has seen an increased appetite from the public as exemplified in the yield on long-term FGN bonds offer which increased from 16.5 per cent in January 2024 to 21.5 per cent June 2024-– one of the highest on record.
Also, the Nigerian Treasury Bills (NTBs) in 2024 witnessed significant patronage by investors as yield recorded over 20 per cent on a one-year auction.
Amid high demand for government securities, PFAs and investors’ subscriptions to NTBs increased to N399.46 trillion as of June 2024, indicating 80.1 per cent Year-on-Year (YoY) growth from N221.81 billion in January 2024.
The pension Industry operates under stringent regulations due to the nature of handling public funds, and the contributions by workers are primarily for their retirement. PenCom, therefore enforces guidelines and limits to ensure the safety and security of contributors’ funds as restrictions are placed on PFAs regarding deployment of contributors’ funds into volatile assets.
This cautious approach is in line with the need to protect contributors’ savings and ensure that they have a secure and reliable source of income in their retirement years.
This has led the PFAs to adopt a mix of fixed and variable assets in their investment portfolios.
An Investment Banker and Stockbroker, Tajudeen Olayinka stated that PFAs and investors will react to low prices of some fundamental stocks on the exchange.
He said, “Prices had become too low to resist, and this happened because of prolonged repricing of securities across markets and instruments, pushing down stock prices below the levels they should ordinarily be.
“It also demonstrates improved earning capacities of some listed companies, as they continue to adjust to the variability of costs and cost pressures in the short run to stay afloat.
“Another factor is the usual positioning and repositioning for the year-end rally by investors, as some companies begin to show strong earnings’ prospects ahead of full-year results.”
On his part, Chief Research Officer, InvestData Consulting Limited, Omordion Ambrose said low pricing of some fundamental stocks and portfolio rebalancing contributed to PFAs renewed interest in stocks.
He said, “The PFAs do not take trade in the stocks with a speculative report as they trade long-term. Attractive revaluation led to PFAs renewed exposure in the stock market.”
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