PFAs pour N1.380tr into corporate debt securities


PFA for N1.380tr, up 43.9%, with an eye on higher yields

By Jeph Ajobaju, Editor-in-Chief

Pension fund administrators (PFAs) invested N1.38 trillion in corporate debt securities in the first eight months of the year to August (8 months 2022), an increase of 43, 9% year-on-year (YoY) on N960.58 billion in 8 months. 2021.

The investment was 9.59% of the PFA’s total assets of N14.39 trillion in the 8 months of 2022.

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Corporate bonds got N1.351 billion or 9.36% of the investment, corporate infrastructure bonds (23.84 billion naira) and green corporate bonds (6.31 billion naira).

PFAs increased their exposure by 0.8% month-on-month (MoM) from N1.37 trillion in July 2022 and by 38.6% year-on-year from N997.03 billion. nairas in 8 months 2021.

PFA investments in money market instruments stagnated at N2.122 trillion, even as financial analysts say yields on corporate debt have risen lately.

They note how PFAs reallocate assets to debt securities whenever the fundamentals of the economy shift in favor of debt securities.

Financial analysts who have expressed their views include Marvelous Adiele, Senior Associate at Parthian Partners, and David Adonri, Vice Chairman of Highcap Securities.

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Wonderful Adele

“Towards the end of 2021 in this year, we saw companies take advantage of the relatively low interest rate environment to raise funds in the market.

“Also at the time, most PFAs looking for higher interest rates and ‘safety’ began to reduce their exposure in equities in view of the expected rate hikes due to the rise in inflation and upcoming elections,” Adiele said. Avant-garde.

“Funds were redirected into the fixed income space and corporate issues were quite attractive at the time. This resulted in a high participation of PFAs in corporate debt.

“Yields were thought to rise later in the year, so the start of the year was a good time for companies to take on market debt. Most companies took advantage of this.


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David Adoni

“Pension funds are generally risk averse due to the nature of the liabilities they have to settle. Therefore, they focus on less risky investments like government bonds and treasury bills.

“When the yield offsets the risk of corporate bonds, they move. They rarely invest in stocks except in blue chips that meet certain strict criteria,” Andori said, per Avant-garde.

“Compared to government debt, the yield on corporate debt has been much higher lately.

“Bond issuers like MTN Communication Nigeria Plc, Dangote Cement, Presco Plc and others are blue chips that also meet all pension fund investment criteria for stocks.

“Seeking higher yield, PFAs channel investment into corporate bonds that they believe meet their levels of risk appetite. Government and corporate bonds are the traditional outlets for pension funds.

“Whenever the fundamentals of the economy shift in favor of debt securities and opportunities arise in the secure enterprise segment, PFAs will seize them to maximize return on investment.”

“The corporate bond market was dormant until recently. Many investors have avoided corporate bonds in the past due to the failure of many issuers to pay interest or repay their debts.

“However, the situation has changed thanks to better regulation and the involvement of large and credible corporate issuers that are not likely to default.

“Therefore, going forward, the prospects for corporate bonds as a credible investment outlet for pension funds are very promising.

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