Low yield on securities, rising inflation, threat to pension assets’ growth, says LCCI

By Omobola  Tolu-Kusimo

Low yield on fixed-income securities such as Treasury Bills at around one to two per cent plus rising inflation currently at 13.71 per cent are threats to the real growth of pension funds assets in the near to medium term, the Director-General, Lagos Chambers of Commerce and Industry (LCCI), Dr. Muda Yusuf, has said.

Dr. Yusuf, who spoke with journalists in Lagos, advocated for the de-risking of the real sector, to attract more investment opportunities, stating that given their low risk nature, a large chunk of pension funds assets are invested in Federal Government Securities, majorly Federal Government Bonds.

He said this is so because the National Pension Commission (PenCom) guidelines mandates Pension Fund Administrators (PFAs) to invest pension funds in low-risk securities, adding that fund managers have little exposure to volatile investment vehicles and that six percent of pension funds assets are locked in equities.

He said: “Fund managers’ exposure to investment vehicles in the real sector is extremely low due to the high level of risk involved. Only two per cent of pension assets is invested in real estate, and less than one per cent in infrastructure fund.

“This is so also because fund managers often complain that projects in the real economy are non-bankable”.

He noted that the trend in Nigerian pension fund assets have been on the upward trajectory in the last three years with assets under Management rising by 42.9 per cent from N7.94 trillion as at March 2018 to N11.35 trillion as at August 2020.

Pension funds assets have appreciated by 8.8 per cent to N11.35 trillion by end-August 2020 from N10.43 trillion by end-January 2020 amid very low return rates on government securities, he said.