PFAs pour N1.380tr, up 43.9%, with an eye on higher yields
By Jeph Ajobaju, Chief Copy Editor
Pension Fund Administrators (PFAs) invested N1.380 trillion in corporate debt securities in the first eight months of the year to August (8M 2022), a 43.9 per cent increase year-on-year (YoY) on N960.58 billion in 8M 2021.
The investment was 9.59 per cent of N14.39 trillion total assets of PFAs in 8M 2022.
Corporate bonds got N1.351 trillion or 9.36 per cent of the investment, corporate infrastructure bonds (N23.84 billion), and green corporate bonds (N6.31 billion).
PFAs raised their exposure 0.8 per cent month-on-month (MoM) from N1.37 trillion in July 2022, and 38.6 per cent YoY from N997.03 billion in 8M 2021.
Investment by PFAs in money market instruments stagnated at N2.122 trillion even though financial analysts say yields on corporate debt have increased in recent times.
They note how PFAs reallocate assets to debt securities each time the fundamentals of the economy shift in favour of debt instruments.
Financial analysists who expressed their views include Parthian Partners Senior Associate Marvellous Adiele and Highcap Securities Vice Chairman David Adonri.
Marvellous Adiele
“Towards the end of 2021 into this year, we saw corporates taking advantage of the relatively low interest rate level environment to raise funds in the market.
“At the time as well, most PFAs in search of higher interest rates and ‘safety’ started to reduce their exposure in the equities space in preparation for expected rate hikes on the back of rising inflation and upcoming elections,” Adiele told Vanguard.
“Funds were redirected to the fixed income space and corporate issues were quite attractive at the time. This resulted in the high stake in corporate debts by the PFAs.
“It was believed that yields will rise later in the year so at the start of the year was a good time for corporates to raise debt in the market. Most corporates took advantage of that.”
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David Adonri
“Pension funds are generally risk averse because of the nature of liabilities they must settle. Therefore, they concentrate on less risky investments like government bonds and treasury bills.
“When the return offsets the risk in corporate bonds, they move in. They rarely invest in equities except in blue chips that meet certain stringent criteria,” Andori said, per Vanguard.
“When compared to government debt, yield on corporate debt has been much higher in recent times.
“The companies issuing bonds like MTN Communication Nigeria Plc, Dangote Cement, Presco Plc and others are blue chips that also meet all pension funds investment criteria for equities.
“In pursuit of higher yield, PFAs are channeling investments to corporate bonds which in their estimation satisfy their risk appetite levels. Public and corporate bonds are the traditional investment outlets for pension funds.
“Whenever fundamentals of the economy shifts in favour of debt securities and opportunities arise in the secured corporate segment, PFAs will seize them in order to maximise returns on their investment.”
“Corporate bonds market used to be inactive until recently. Several investors shunned corporate bonds in the past because of failure by many issuers to pay interests or redeem their liabilities.
“However, the situation has changed due to better regulations and involvement of big and credible corporate issuers that are not likely to default.
“Therefore, going forward, the outlook for corporate bonds as a credible investment outlet for pension funds is very bright.