The National Pension Commission (PenCom) has revealed that Federal Government of Nigeria (FGN) securities dominate the asset portfolios of pension funds, constituting the largest asset class within the industry.
According to a recent report by PenCom, FGN bonds account for 96 percent of total FGN securities and over 60 percent of the overall asset mix of pension fund administrators (PFAs).
As of June 2024, investment in FGN securities had reached N12.96 trillion, marking a substantial 19.4 percent year-on-year growth from N10.86 trillion in June 2023.
This surge is attributed to rising yields, a high-interest rate environment, and increased issuance of FGN papers by the Debt Management Office (DMO) to meet the federal government’s domestic funding targets, which totaled N6.12 trillion for the 2024 financial year budget.
Despite a significant 750 basis points increase in the monetary policy rates to 26.25 percent in May 2024 by the Central Bank of Nigeria (CBN), PFAs continued to invest heavily in FGN securities. This trend is driven by the relatively safe and stable returns offered by FGN bonds and the prevailing attractive yield environment.
PenCom’s report also highlighted substantial growth in Nigeria’s pension funds industry. Total assets under management (AUM) witnessed a remarkable 22.21 percent year-on-year increase and a 1.27 percent month-on-month growth, soaring to N20.48 trillion by the end of June 2024. This reflects a 4.14 percent increase from December 2023, showcasing the industry’s robust trajectory.
Breaking down the AUM by asset class and fund type, the report indicated that a significant portion, 63.3 percent, was invested in FGN securities. Corporate debt securities followed at 10.8 percent, domestic ordinary shares at 9.6 percent, and money market instruments at 9.3 percent of the total AUM.
The report also highlighted a significant increase in pension fund investments in domestic ordinary shares, which saw a 55 percent year-on-year rise to N1.91 trillion.
This surge is attributed to the robust performance of the Nigerian Stock Exchange (NGX), although hampered by negative market internals that have dampened investor sentiment.
During the first six months of 2024, the local bourse performed well, with the All Share Index (ASI) accelerating by 33.81 percent year-to-date. This resulted in N15.68 trillion worth of gains for equity investors, aided by second-quarter-end window dressing.
On a monthly analysis, major asset categories such as treasury bills registered the highest gain in June, rising by eight percent month-on-month to roughly N400 billion. Treasury instruments benefited from the prevailing elevated yield environment due to the CBN’s restrictive monetary stance and tight market liquidity.
Pension fund holdings in domestic equities also continued to rise. The total value of domestic equities increased by 4 percent month-on-month to N1.9 trillion. Meanwhile, FGN bonds, which make up more than half (60 percent) of overall pension assets, amounted to N12.2 trillion in June, reflecting an increase of almost N141 billion from the previous month.
This report underscores the growing reliance on FGN securities within the pension funds industry and the broader economic implications of these investment trends.
