The pension funds managers have invested N2.27trillion from the 14.3trillion into money market instruments comprising of fixed deposits in banks, commercial papers as well as Foreign money market instrument, as at the end of July, 2022, LEADERSHIP can now reveal.
While investment of pension fund in fixed deposits took the larger chunk of this investment accounting for N2trillion, commercial papers accounted for N157.7 billion even as foreign money market instrument was N39.9billion as at the end of July, 2022.
In June 2022 where Money Market instruments accrued N2.14trillion, Fixed Deposit attracted N1.89trillion and in May, 2022, this instrument accounted for N2.20 trillion of the pension assets as Fixed Deposits amounted to N1.95trillion of this fund.
However, money market instrument was N2.25trillion in April, 2022, even as Fixed Deposit amounted to N1.99trillion.
At the end of the first quarter of the year, that is, March 2022, the investment in bank placements rose by N110billion to hit N2.14trillion.
However, fixed deposit in January, 2022 rose significantly to N2.23trillion, having moved from N1.96trillion in December, 2021, even as the interest of pension fund operators in banks was N2.03trillion as at February, 2022.
In LEADERSHIP review of the Monthly Unaudited Report on Pension Fund Industry Portfolio released by the National Pension Commission(PenCom) for the months under review, findings show that more than 90 to 92 per cent of the investments under Money Market instrument category went into Fixed Deposits, showing increased interest from pension fund operators as it gave better returns on investments of the N14.3trillion pension fund assets.
Fixed Deposits also known as Bank Placement or Acceptance is a short term investment instrument used by corporate organisations, such as Pension Fund Administrators(PFAs) to place fund in banks or other financial institutions at an agreed interest rate and tenor.
The tenor, however, hovers between 30 and 360 days, depending on the choice of the firm doing the placement.
Findings by LEADERSHIP shows that pension fund operators are gradually divesting the proceed of their matured bonds into the bank placements due to volatility in the bond market.
The fixed deposit, according to findings, is giving better interest income to pension fund operators, as they get as high as 8, 9 or 10 per cent interest or more within 90, 120, 150, 180 and 360 days, depending on the terms of agreement, meaning that, there is possibility they can turn over such placement two, three to four times or more in a year, unlike bonds that is stereotype and has a longer cycle.
This invariably means that, Pension Fund Administrators(PFAs) can get between 10 to 40 per cent return on investment on its invested funds in a year, depending on the agreed tenor. This investment instrument, as it stands, remains the highest yielding investment outlet for pension fund operators.
LEADERSHIP investigation shows that, this was partly responsible for the growth of the pension assets to N14.3trillion as at July 2022, as investment income, of which bank placements contributed the highest, was one of the main drivers of the assets.
Responding to LEADERSHIP enquiry on the attraction of Pension Fund operators to bank placements earlier in the year, the managing director/CEO, Access Pension Fund Custodian(PFC), Mrs. Idu Okwuosa, said, the increased investment in bank placements by operators was as a result of the lull in the bond market as the process of the matured bonds find their way into this investment class.
Stating that the significant growth in pension assets was majorly from investment returns, Okwuosa, who is also the head, Branding Committee of the Pension Fund Operators Association of Nigeria(PenOp) added that, interest from bank placements contributed majorly to the investment returns.
“Because of the issues in the bond market and a lot of attention on it, operators are increasing their stake in bank placements. It’s been profitable in terms of investment returns and the turnover is good. The growth in pension assets is also attributable to this. In the end, the major beneficiaries are the contributors who will continue to witness growth on the balance in their Retirement Savings Accounts(RSAs).”
She had earlier assured contributors that all pension investments in the industry are insured, well regulated and secured.
“The public should be assured that all pension assets are traded in the name of the Pension Fund Administrator (PFA) and Pension Fund Custodian (PFC), in other words, the investments are made in the PFA/PFC’s name. The returns are not paramount to the National Pension Commission (PenCom) or operators, as much as the safety of the funds,” she said.
Similarly, the chief executive officer (CEO) of PenOp, Mr. Oguche Agudah, said, while pension operators work assiduously to grow the pension fund assets contributed by Retirement Savings Account (RSA) holders, they are very keen in balancing between safety and returns on investments.
Noting that safety is the first option adopted when investing in any asset, he maintained that, as part of efforts to grow the pension fund assets, operators are eyeing other alternative investment options aside from the government bonds and treasury bills.
“…the honest truth is that pension funds need to invest more in other assets classes outside of the government bonds and treasury bills which are the safest. So, safety is the first option adopted when investing in any asset.
Earlier, the managing director/CEO of the ARM Pension, Mr. Wale Odutola noted that, apart from attractive interest rate that comes with bank placements, it is also short-term which gives room for reinvestment and make more income within a year.
He promised that operators will continue to look for profitable alternative investment windows as interest rate nosedive in other areas.
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