In what regarded like sayings from Nostradamus (the person who noticed tomorrow), numerous media homes everywhere in the world predicted that pen
In what regarded like sayings from Nostradamus (the person who noticed tomorrow), numerous media homes everywhere in the world predicted that pension funds can be hit onerous by COVID-19.
On April 1st 2020, Bloomberg information prophesied that pension funds can be hit. In like method, the CBC Information, Canada, famous on Mar 18, that public pensions take successful from COVID-19 considerations.
UK’s Guardian information wrote on February 29th 2020, “British pensions set to take successful from market tumble” and the Telegraph caped it up with a caption that learn,” Pensions hit by “double whammy” of financial institution price cuts and falling markets”.
The identical predictions had been made by many different information shops.
From the look of issues, and going by the March 2019 version of the Abstract of Pension Fund Property launched by the Nationwide Pension Fee (PenCom), Nigeria, these predictions appear to have come true for the Nigerian pension fund trade.
Based on the March 31st Abstract of Pension Fund Property, the overall worth of pension property stood at N10.327 trillion, a discount of N180 million or 1.71% when put next with the February 29th complete worth of N10.507 trillion.
The discount got here from sell-offs of pension fund investments in home peculiar shares and Treasury payments.
Within the month of March truly, pension funds noticed N200.four million flowing out of the trade with solely N20.28 million flowing in. Of the fund sorts, RSA fund (fund 2) was the toughest hit because it suffered many of the reductions in web asset worth.
April Idiot: The trade, nonetheless, made a fast restoration in April when the asset worth elevated by 2.42%, in accordance with Abstract of Pension Fund Property of April 30th 2020.
With that improve, the overall pension fund property bounced again to N10.578 trillion, having elevated by N250 million in web inflows. (N445m inflows and N195m outflows).
Virtually all of the outflows got here from sell-off of Treasury payments, making treasury invoice funding by pension fund managers lower by 14.35%.
You’ll recall that in my final article, I identified that pension fund managers fell out of affection with Treasury payments in February 2020, that development has continued unabated and has even intensified.
As with the March development, many of the improve in fund property was noticeable within the RSA fund (fund 2) which attracted a lot of the influx in April.
Fund Three is growing in recognition because it retains gathering constructive contributions month after month. It’s now the second largest pension fund subcategory accounting for 25.8% of complete pension fund property.
Asset Allocation: It’s not uncommon in conditions of terribly low yield for pension fund managers to enterprise into extra dangerous investments seeking yields. This, when it occurs, might show harmful for the fund managers and the retirees whose threat tolerance might not match such asset lessons.
A take a look at the composition of pension funds asset allocation, nonetheless, doesn’t point out that Nigerian pension fund managers are shifting into extra dangerous property as at but.
As at April 30th 2020, 54.5% of pension property are invested in FGN Bonds, whereas 14.3% is in Financial institution placements, and 10.7% is in Treasury Payments. These are all low-risk property that fall consistent with the provisions of the Pension Act of 2014.
Conclusion: The velocity with which the Nigerian pension fund asset worth bounced again from the discount in worth it suffered in March is indicative of the truth that the trade might not take as a lot hit as predicted.
Moreover, there isn’t any indication that Nigerian pension managers are concerned in asset reallocation to dangerous property in an try to enhance their return efficiency however there may be have to be careful for any model shift that will improve the chance attributes of pension fund portfolio construction. We’re watching.