The exposure of the Pension Fund Administration’s (PFAs) in federal government’s securities and the domestic stock market soared to N15.96 trillion in 11 months of 2024, due to the attractive returns and risk-free nature of government’s securities, data by the National Pension Commission (PenCom) has revealed.
FGN Securities comprise FGN Bonds, Nigerian Treasury Bills (NTBs), Agency Bonds (NMRC), Sukuk Bonds and Green Bonds.
The latest data by PenCom revealed that PFAs’ investments in both FGN Bonds and the stock market increased by N1.89 trillion or 13.4 per cent from N14.07 trillion in January 2024, to N15.96 trillion in November 2024.
The breakdown showed that PFAs’ stake in FGN bonds increased from N12.14 trillion in January 2024, representing about 13.96 per cent increase to N13.83 trillion in November 2024, while the PFAs’ exposure grew by 9.9per cent to N2.12 trillion in the stock market as of November 2024, from the N1.93 trillion recorded by the PenCom in January 2024.
The combined investment of PFAs in FGN securities and the stock market contributed about 71.7 per cent of the N22.26 trillion net assets value as of November 2024.
Analysts attributed PFAs’ weak exposure in the equities market to the increasing Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) that created room for divestment to Government securities amid attractive yield and risk-free investment.
The apex banking regulating body had consistently hiked the yield on Government securities in 2024 amid the rising inflation rate and supported the government in funding its budget deficit.
The Nigerian Treasury Bills in 2024 witnessed significant patronage by investors with a yield of over 20 per cent on a one-year auction.
The 2024 Budget of ‘Renewed Hope’ as proposed by President Bola Tinubu outlines a total expenditure of N27.5 trillion, with a projected revenue of N18.32 trillion and a deficit of N9.18 trillion.
Local and foreign investors seem to respond positively to the double-digit interest rates on NTBs, as seen in the robust subscription rates, suggesting confidence in the CBN’s ability to manage the country’s monetary challenges amid a scarcity of foreign exchange and a double-digit inflation rate.
As it intensifies moping liquidity in the financial sector, the total investors’ NTB increase rose to N23.51 trillion reported by the Apex Bank in 2024.
According to the ‘Primary Market’ data by CBN, the N38.08 trillion NTB subscription in the year under review was on the backdrop of demand for risk-free instruments and hedge against increasing inflation rate by investors.
NTB is typically issued by CBN to meet the government’s short-term financing needs and is considered a safe and low-risk investment.
In the period under review, the CBN offered to raise N7.6 trillion from the NTB market and eventually settled for N12.4 trillion in total successful NTB raised.
Meanwhile, the rush for FGN securities impacted on PFAs’ exposure in the stock market in 2024 as the overall market gained 37.65 per cent to close at 102,926.40 basis points, while the NGX Pension Index appreciated by 39.5 per cent to close 2024 at 4,521.13 basis points.
Analysts stated that PFAs are benefiting from the undervalued stocks amid the weakening of the Naira and renewed investors’ confidence in the equities market.
The pension industry operates under stringent regulations due to the nature of handling public funds, primarily the contributions of workers meant for their retirement.
The PenCom enforces guidelines and limits to ensure the safety and security of contributors’ funds as restrictions are placed on PFAs regarding the allocation 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 during their retirement years.
Responding to PFAs’ exposure in the stock market, Investment Banker & Stockbroker, Mr. Tajudeen Olayinka explained that PFAs and investors reacted to the low prices of some fundamental stocks on the exchange.
“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,” he said.
On his part, Chief Research Officer, InvestData Consulting Limited, Mr. Omordion Ambrose told THISDAY that low pricing of some fundamental stocks and portfolio rebalancing contributed to PFAs renewed interest in stocks.