Pension Fund Administrators (PFAs) have witnessed a robust growth in their equity investments, with the Net Asset Value (NAV) of these investments soaring by 36.6 percent to reach N1.460 trillion by the close of the first half of 2023 (HI’23), up from N1.069 trillion in the corresponding period of 2022 (H1’22). Simultaneously, the NAV of their investments in federal government bonds (FGN bonds) has experienced a substantial 20.6 percent increase, reaching N10.858 trillion from N9.007 trillion in H1’22.
The recent FGN bond auction, as reported by the Debt Management Office (DMO), garnered significant attention this month, with a total subscription of N312.56 billion. Financial experts attribute the accelerated growth of PFAs’ assets in equities to the alluring yields offered by the equities market. However, these experts anticipate a potential shift in the second half of 2023 (H2’23) due to the Central Bank of Nigeria’s (CBN) continuous elevation of interest rates through the Monetary Policy Rate (MPR). This shift might prompt investment managers to migrate toward high-yielding debt instruments.
Mallam Garba Kurfi, the Chief Executive Officer (CEO) of APT Securities and Funds Limited, commented on this evolving landscape, stating, “Equity prices have drawn more investments, particularly as rising inflation rates have led to negative returns in fixed-income investments. However, we could witness changes in H2’23 as equity yields decline and returns on debt instruments increase due to the ongoing rise in the MPR.”
Addressing the FGN bond subscription for the current month, the DMO announced, “Despite prevailing market conditions, the auction attracted a total subscription of N312.56 billion.” The DMO conducted the FGN bond auction for August amid tightening monetary policies and prevailing uncertainties.
The auction featured four instruments (14.55 percent FGN April 2029, 14.70 percent FGN June 2033, 15.45 percent FGN June 2038, and 15.70 percent FGN June 2053), each with an offering of N90 billion. Notably, investor appetite remained robust for the 15.70 percent FGN June 2053 (a 30-year Bond), with a bid-to-cover ratio of 2.71 times. Successful bidders were allocated a total of N227.76 billion across the four instruments.
According to the office, “Allotments were made at 13.85 percent for the 14.55 percent FGN April 2029, 15.00 percent for the 14.70 percent FGN June 2033, 15.20 percent for the 15.45 percent FGN June 2038, and 15.85 percent for the 15.70 percent FGN June 2053.”
