It has been rightly stated that if the chicken learns to fly with out perching, the hunter too should study to shoot with out lacking. That proverbial assertion appears to be taking root within the pension fund trade. Since rates of interest started and proceed to development southwards, Nigerian pension fund managers have been lowering their asset allocation and publicity away from their as soon as darling treasury payments.
As revealed by evaluation of the lately launched August version of the Asset Abstract of Nigeria pension funds, Nigeria pension fund managers have elevated their publicity or asset allocation to international cash market securities by 214% because the starting of the 12 months, whereas the allocation to treasury payments has decreased by 47% inside the similar interval.
As initially of the 12 months, solely N5.3 billion was invested in international cash market securities, however that has elevated to N16.9 billion by the tip of August. Comparatively, asset allocation to treasury payments which had stood at N1.9 trillion as initially of 2020, has fallen to N1.005 trillion by August finish.
Implications for home borrowing
Pension fund managers have performed and proceed to play a giant function in offering funds to the Nigerian Authorities’s home borrowing initiatives. Nonetheless, the seeming lack of curiosity in FGN Treasury payments because of near-zero rates of interest could have an effect on the extent to which the federal government realizes its home borrowing objectives via inflows from pension fund managers.
The attraction to international cash market securities could not solely be because of increased rates of interest elsewhere, as rates of interest appear to be very low and even within the adverse vary in some international nations.
It could relatively be the devaluation of the native forex that’s fueling the curiosity in international securities. Although cross-country investments are good for diversification and all the advantages that come from it, it could be mandatory for the federal government to be eagle-eyed on the Naira alternate price, as that will result in extra cross-country investments and a few type of capital flight with all its adverse implications.
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One other asset kind that has benefited from the realignment or allocation of belongings by pension fund managers is Industrial Papers. By the tip of 2019, pension fund managers had allotted N116.8 billion to Industrial Papers however that has elevated by 110% to N245.2 billion by the tip of August 2020.
A industrial paper could be very very like a cash market safety – a type of an IOU or promissory observe issued by giant firms, who want funds required to finance their short-term operations.