BOND MARKET NOW MAJOR INVESTMENT WINDOW FOR PENSION MANAGERS
By FOSTER OBI
As Nigeria businesses seek out veritable avenues to commit their resources, the Bond market is proving to be a major investment window for pension managers. Research shows that the market, particularly Federal Government of Nigeria (FGN) Bonds have continued to enjoy large amount of investment funds from the country's pension industry, as many of the Pension Fund Administrators (PFAs) have found the bond market safe havens for investment of contributor's Retirements Savings Account (RSA) fund.
Investigation shows that these managers are going for bonds because since it has to do with the government, it's considered safe, and it is not likely that government will fail to honour its obligations. A look at the investment portfolio of some licensed Pension Fund Administrators indicates a high dominance of bonds, especially FGN and state government bonds, as investment window.
As an example, Trust Fund Pensions Limited; ARM Pensions Limited; PAL Pensions Limited, invested averages of 63 percent; 60.84 percent and 67.30 percent respectively on bonds; while Premium Pensions Limited; Oak Pension Limited and Penman Pensions Limited invested on the average 73 percent; 74 percent and 70.15 percent, respectively on weekly basis. According to some investment experts, the rate of interest recently has been high and competitive, hence the predilection for them by most investors.
It has been discovered that at least 62.18 percent, amounting to N1.87 trillion of the over N3 trillion pension assets under the management of PFAs, found their way into the bond market on a week by week basis, as against other investible instruments. Dave Uduanu, chairman, Pension Fund Operators Association of Nigeria (PenOp) said 'the bond market has remained a major investment window for us because our first priority is safety of the funds of contributors.' He observed that as much as possible, PFAs would avoid volatile investment instruments because the owners of the pension funds will not listen to excuses.
'I think this is what is accounting for the inflow into bonds and less flow to equities market, but then we will continue to respond to market developments.' Investigations reveal that due to the different investment channels available to PFAs there are disparities in the yields from contributors fund from one PFA to another. For instance, two contributors who contribute the same amount on monthly basis with different PFAs end up getting different yields in their accounts, as a result of the investment decisions of their respective administrators.
Financial experts believe this supports the call for flexibility in the system, in terms of a transfer window which allows contributors to change their Pension Fund Administrators, basing their choice on the administrator's investment capabilities. Some of the PFAs said in seeking to maintain optimum return on pension savings while ensuring safety in a tough economic environment, they remained disciplined in selection of 'best of breed' assets.
The investment regulation approved by the National Pension Commission prescribes investment limits on FGN or CBN Securities (80 percent); State Government Bonds (20 percent); Ordinary Shares or Equities (25 percent); Money Market Instruments (35 percent); Corporate Bonds/Debt (35 percent); Supranational Bonds (20 percent); Infrastructural Funds (5 percent); Private Equity (5 percent) and Mutual Funds (20 percent) There are currently 20 PFAs, 7 Closed PFAs, 4 PFCs and about five million registered contributors.
Under the contributory pension scheme, 51,000 retirees are already receiving their monthly pensions as and when due, while the value of pension fund assets under management has grown in excess of N3 trillion, with average monthly pension contributions of N25 billion.