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Pension Administrators move to invest in infrastructure in 2023

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The Chief Executive Officer, Pension Funds Operators Association of Nigeria (PenOp), Mr Oguche Agudah, on Thursday in Lagos said, most pension fund managers would invest heavily in infrastructure in 2023.

Agudah said at a webinar organised by PenOP, with the theme: The Nigerian Economic and an Investment Outlook ; A focus on Pension Fund Investment Strategies.

“42 per cent of the Pension Fund Administrators (PFAs) indicated that they were actively looking for investments in infrastructure.

” While another 50 per cent said they would also consider investments along that line of business in the current year, ” he said.

According to him, though fund managers are careful about private equity, they will consider the investment in infrastructure on a deal by deal basis.

Agudah noted that 25 per cent of the fund managers had assured their investment in private equity while 67 per cent of them were considering it.

“Fund managers are looking to invest in impact funds but transparency and structure are key,” he said.

On various dealings in equities and securities, the PenOp CEO disclosed that there was reduction in engagement with equities in the outgone year from 7.73 per cent in 2021 to 6.79 per cent in 2022.

Agudah explained that government securities as share of portfolio declined by 118 basis points to 65.44 per cent, while there was reduction in interaction with money market securities which declined by 1.92 per cent.

Also, Mrs Rita Babihuga-Nsanze, Chief Economist, Africa Finance Corporation (AFC) said some of the steps the incoming government must take to put the economy on the right path is to halt the oil subsidy policy.

Babihuga-Nsanze said the incoming government must address security in oil sector corridor, subsidy regime and enthrone the expected reform in forex market.

She expresed disappointment that Nigeria failed to accumulate its foreign reserves, in spite of the high international oil price.

According to her, foreign exchange reserves fell by $3.5 billion or eight per cent between January and December 2022.

“The Federal government earned no revenues from the sale of crude oil despite the windfall crude oil prices recorded in 2022 due to subsidy payments.

“Government interest payments as a share of revenue have more than doubled from 19.7 per cent in 2018 to the current 48 per cent.

“Low amortisation requirements for 2023 and 2024 offer Nigeria some breathing space on the external front.

“Unfortunately, we do not foresee high levels of debt stress from Nigeria’s eurobond repayments in the near term.

“This is because majority of Nigeria’s external debt is multilateral based lending, which is 47 per cent of total stock, she said.

According to her, the eurobond markets had unfortunately remained inaccessible to Nigeria for its financing needs due to the country’s current sovereign spreads and credit rating.

Babihuga-Nsanze warned that without the necessary structural reforms, the current forex liquidity pressure would persist in 2023 and potentially in 2024 on the back of increasing downward pressure on foreign reserves.

pension

PFAs invest in stocks as new strategy

Pension Fund Administrators (PFAs) in Nigeria have shifted investments to stocks listed on the Nigerian Exchange Limited (NGX), among other Exchanges in 2021, as their exposure increase by 51.4 per cent in 11 months.

Analysts have expressed that the moves by the PFAs was in a bid to escape the unattractive yield environment that prevailed in the Treasury Bills (T-Bills) market in 2021.

Investigation revealed that PFAs investment in stocks between January and November of 2021 was N9.48trillion, an increase of 51.4 per cent from N6.26trillion reported by the National Pension Commission (PenCom) between January and November of 2020.

The aggressive investments by the PFAs in the stock market impacted significantly on listed blue-chips companies and local investors outshining foreign investors on the bourse.

For instance, the stock market in 11 months of 2021 had gained N1.5trillion to N22.567 trillion from N21.063trillion it opened in 2021, while the NGX All-Share Index or ASI appreciated by 7.4 per cent to 43,248.05basis points to close at 40,270.72 basis points it closed in 2020.

The stock market had closed at N22.30 trillion in 2021 after appreciating by N1.24 trillion.

The All-Share Index of the Exchange closed 2021 at 42,716.44 basis points, up from 40,270.72bps at the end of 2020.

According to NGX’s domestic & foreign portfolio participation in stock trading in 11 months of 2021, out of the N1.74trillion total trade, domestic investors traded N1.34 tillion or 77.07 per cent while foreign investors traded N399.18 billion or 22.93 per cent in the period under review.

The latest data obtained by THISDAY from PenCom revealed that PFAs exposure in the stock market reached its second peak in November 2021.

PFAs exposure in domestic shares dropped by 3.1 per cent Month-on-Month (MoM) to close at N876.45billion in November 2021 from N904.74billion reported by PenCom in October 2021, while exposure to T-Bills dropped to N274.99billion in November 2021 from N642.03billion in November 2020.

However, PFAs investment in T-Bills depreciated by 52.6 per cent to N5.49 trillion in 11 months of 2021 from N11.6trrillion in 11 months of 2020.

Checks revealed that the real return on the short-term instrument, (T-bill interest rate minus inflation), in 2021 stood at – 10.5 per cent, better than the -14.54 per cent reported in 2020.

After crashing to a four-year low of near-zero per cent in 2020, yields on the FG’s risk-free T-Bills jerk up to more than 17-month high of 9.75 per cent around May 14.

The rate, however, plunged to an 11-month low of 4.9 per cent at the last auction of 2021, as compiled from T-Bills’ primary market auction results for December 29, 2021.

Further analysis of the T-bill auction result for 2021 revealed that while interest rates on the 91-day and 182-day bills were mostly constant at about 2.49 per cent and 3.45 per cent, respectively in the review year, the longer 364-day reported the most decline, ending the year at 4.9 per cent.

According to analysts, investors’ interest in T-bills and consequently, the lower interest rate, has been largely due to their unwillingness to take a risk on longer-term instruments due to expectation of higher interest rates in 2022.

Further analysis showed that PFA’s total investment in FGN securities that include FGN Bonds, T-Bills, Agency Bonds (NMRC), Sukuk Bonds, Green Bonds and State Govt Securities rose by 11.8 per cent to N91.47trillion in 11 months of 2021 from N81.81trillion in 11 months of 2020.

Analysts, however, have expressed mixed feels over the penetration of PFAs in the domestic stock market.

The regulation on Investment of Pension Fund Assets of February 2019 stated that: “A PFA may invest the pension fund assets of any one Fund in the ordinary shares of a listed company, subject to a maximum limit of 7.5 per cent of the issued share capital.

Cumulatively, in the six (6) Funds under the Multi-Fund Structure, a PFA shall not hold more than 20 per cent of the issued share capital of a listed company.”

CEO Pension Fund Operators Association of Nigeria (PenOp), Mr Oguche Agudah said: “The target is a guild not by force for PFAs to meet the 20 per cent requirement set by PenCom. I can decide to do five per cent and beyond but it is not necessary I meet the 20 per cent.

“So, it depends on the individual PFAs business strategies and what equities are available for them to buy. PFAs can’t just invest in any stocks. Their investment in equities is still huge relatively to other institutional investors in Nigeria.”

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