FGN Securities Up 19.9% to N10.2trn, As States Decline 5%
By Patience Ikpeme
During the first quarter of 2023, Pension Funds Administrators (PFAs) increased their investments in less risky assets, particularly Federal Government securities.
This was driven by concerns about uncertainty surrounding the 2023 general election and the low yield in the equities market. Government securities, backed by the Central Bank of Nigeria, are considered less risky but offer returns aligned with the Monetary Policy Rate.
Data from the National Pension Commission (PenCom) revealed that PFAs’ investments in Federal Government Securities rose by a significant 19.9% year-on-year to N10.2 trillion in Q1’23 from N8.5 trillion in the same period of 2022.
However, their interest in equities, which carry higher risk, increased at a slower rate of 9.6% to N1.2 trillion compared to N1.1 trillion in 2022.
On the other hand, PFAs’ investment in state government securities slightly decreased by 5.0% year-on-year to N162.2 billion from N171.6 billion in 2022.
Analysts attribute the increased investment in FGN Bonds to PFAs’ concerns about the uncertainties surrounding the 2023 general election.
Previous statistics have shown that the equities market tends to suffer during Nigerian general elections due to political uncertainties.
The rise in PFA investment in government bonds is also driven by the safety and interest rates offered by fixed income investments. Additionally, the recent rate hike by the Central Bank of Nigeria and the fragile global economy have led institutional investors to shift their focus to debt instruments.
According to industry experts, PFAs reduced their investment in equities to take profits and mitigate the higher risks associated with this asset class.
The increase in the Monetary Policy Rate from 11.50% to 14% during the review period also attracted more investments to fixed income instruments. However, after the election, equities prices started to attract more investments, particularly as the inflation rate continued to rise, making fixed income investments yield negative returns.
