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PFAs Seeking New Investment Outlets, Push Investments In Banks To N2.24trn

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The pension fund assets investment in bank placements has risen to N2.24 trillion, LEADERSHIP can now reveal.

Bank placement is a short term investment instrument used by corporate organisations, such as Pension Fund Administrators (PFAs) to place fund in banks or other financial institutions at an agreed interest rate and tenor.

The tenor, however, hovers between 30 and 360 days, depending on the choice of the firm doing the placement.

Between January and October, 2021, the investment of pension assets in this investment class rose by N800 billion, showing increased interest from Pension Fund operators in bank placement.

Findings by LEADERSHIP shows that pension fund operators are gradually divesting the proceed of their matured bonds into the bank placements due to volatility in the bond market.

The bank placements, according to findings, is giving better interest income to pension fund operators, as they get as high as 8, 9 or 10 per cent interest or more within 90, 120, 150, 180 and 360 days, depending on the terms of agreement, meaning that, there is possibility they can turn over such placement two, three to four times or more in a year, unlike bonds that is stereotype and has a longer cycle.

This invariably means that, Pension Fund Administrators(PFAs) can get between 10 to 40 per cent return on investment on its invested funds in a year, depending on the agreed tenor. This investment instrument, as it stands, remains the highest yielding investment outlet for pension fund operators.

Investment In Bank Placements

LEADERSHIP investigation shows that, this was partly responsible for the growth of the pension assets to N13 trillion as at October, 2021 as investment income, of which bank placements contributed the highest, was the main driver of the assets.

Of the five fund classes, most of the investments in banks were from Fund II.

According to a data sourced by LEADERSHIP from the National Pension Commission(PenCom), as at January, 2021,  a sum of N1.48trillion of which Fund II contributed N604.1 billion, has been invested in bank placements, while it went up to N1.51 trillion in February as Fund II contributed N636.7billion.

In March, 2021, the amount invested in bank placement by operators rose to N1.58trillion, jumped to N1.64trillion in April and by May, 2021, it nosedived to N1.55trillion. It further went up to N1.64 trillion in June, and from there, it witnessed a major leap to N2 trillion in July, 2021.

Although, it reversed to N1.99trillion in August, but it gained about N220 billion within one month to N2.22 trillion in September, even as it peaked to N2.24 trillion in October, 2022, which was the last data released last week by the pension industry regulator.

Experts’ Reactions

Speaking in an exclusive interview with LEADERSHIP, yesterday, the president, Pension Fund Operators Association of Nigeria(PenOp), Mr. Wale Odutola said, rate is the major factor driving PFAs toward this investment outlet, even as operators continue to diversify their investment portfolio.

Odutola, who is also the managing director/CEO of the ARM Pension, noted that, apart from attractive interest rate that comes with bank placements, it is also short-term which gives room for reinvestment and make more income within a year.

Promising that operators will continue to look for profitable  alternative investment windows as interest rate nosedive in other areas, he promised that, the ultimate aim of this is to give good returns on investment of contributors’ money which, he said, is critical to the growth of the pension assets.

Responding to LEADERSHIP enquiry on the attraction of Pension Fund operators to bank placements, the managing director/CEO, Access Pension Fund Custodian(PFC), Mrs. Idu Okwuosa, said, the increased investment in bank placements by operators was as a result of the lull in the bond market as the process of the matured bonds find their way into this investment class.

Stating that the significant growth in pension assets last year was majorly from investment returns, she added that, interest from bank placements contributed majorly to the investment returns.

“Because of the issues in the bond market and a lot of attention on it, operators are increasing their stake in bank placements. It’s been profitable in terms of investment returns and the turnover is good. The growth in pension assets is also attributable to this. In the end, the major beneficiaries are the contributors who will continue to witness growth on the balance in their Retirement Savings Accounts(RSAs).”

She had earlier assured contributors that all pension investments in the industry are insured, well regulated and secured.

“The public should be assured that all pension assets are traded in the name of the Pension Fund Administrator (PFA) and Pension Fund Custodian (PFC), in other words, the investments are made in the PFA/PFC’s name. The returns are not paramount to the National Pension Commission (PenCom) or operators, as much as the safety of the funds,” she said.

Finding New Investment Outlets

Similarly, the chief executive officer (CEO) of PenOp, Mr. Oguche Agudah, said, while pension operators work assiduously to grow the pension fund assets contributed by Retirement Savings Accounts (RSAs) holders, they are very keen in balancing between safety and returns on investments.

Noting that safety is the first option adopted when investing in any asset, he maintained that, as part of efforts to grow the pension fund assets, operators are eyeing other alternative investment options aside from the government bonds and treasury bills.

“…the honest truth is that pension funds need to invest more in other assets classes outside of the government bonds and treasury bills which are the safest. So, safety is the first option adopted when investing in any asset.

“Currently pension funds cannot invest in foreign bills because there are regulations which need to be approved by the government. However, we are looking out for other various outlets and areas where the funds can be invested; areas like private equity, but the honest truth is that we need to balance between safety and returns. Notwithstanding, the industry is looking at other alternative investment instruments,” Agudah maintained.

Meanwhile, the former managing director/CEO, Fidelity Pension, Amaka Andy-Azike, stated that, “as operators, we focus more on the safety of funds when investing even as we try to also give fair returns on your investments.

Andy-Azike, who recently retired from the pension outfit, noted that, operators are currently looking out for other platforms that are safe to invest the funds, stressing that, safety of funds comes first in all investment the operators partake.

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