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Thursday, November 30, 2023

Pension Funds Boost Holdings of Money Market Notes to Record High

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Nigerian Pension Fund Administrator’s (PFA’s) boosted their holdings of local money market securities to an all-time high, in a sign that policy measures that have depressed fixed income yields are testing their ability to deliver real inflation adjusted returns.

Total holdings of money market securities by PFA’s surged to a record N1.669 trillion ($4.3 billion) in late April, equivalent to 15.78 percent of total pension assets of N10.5 trillion ($27 billion), latest National Pension Commission or PENCOM data, analyzed by MoneyCentral show.

The holdings were up 76 percent from a year ago when assets invested in money market securities were equivalent to N947 billion ($2.6 billion).

Since January 2020, pension funds allocated to money market securities are up some 40 percent.

Money market securities are Interest-bearing notes that mature within one year. Included in this group are short-term certificates of deposit, repurchase agreements, and commercial paper.

Nigerian Pension Funds are increasing exposure to money market securities in recent weeks, after central bank measures to halt their purchase of Open Market Operations (OMO) securities led to a collapse in Treasury Bills and other fixed income yields.

Yields on one year Treasury Bills closed trading at 2.96 percent on Wednesday, according to FMDQ data.

A year ago (April 2019) PFA holdings of Treasury Bills was equivalent to 21.5 percent of total pension assets, while holdings of money market securities was 10.39 percent.

Holdings of Treasury Bills fell to 15.28 percent in January 2020, while money market security exposure rose to 11.31 percent.

By February this year the asset mix had flipped with holdings of money market securities now equivalent to 15.25 percent of total pension assets, while Treasury Bills investments by PFA’s declined to 13 percent.

While the trend may not yet be alarming, there are valid concerns about risks to the economy or mismatch inherent in investing what are basically long term Pension Funds in short term securities, especially if the CBN engineered financial repression leads to an ever greater percentage of pension funds being parked in money market notes.

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