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The Chief Executive Officer of Sigma Pensions Limited, Dave Uduanu, has said the 2020 financal year will not be a smooth ride for Pension Funds Administrators (PFAs) in Nigeria.
Uduanu who said this in a media interview while discussing the business outlook for the sector stated that 2020 is looking very tough for PFAs with bond yields below 10 per cent while treasury bill yields are about four per cent. He pointed out that the yields are below the inflation rate and it would be difficult to manage savings in a country where yields are below inflation.
He said: “In 2019, a lot of PFAs were able to deliver returns that were slightly above inflation in the four key funds that we manage. However, this year is looking tougher, it’s looking challenged. Bond yields are below 10 per cent and treasury bill yeilds are below four per cent. All below inflation.
“How do you manage savings in a country where yields are below inflation. Even asides from pension funds, for the man on the streets, if you want to achieve the goal of financial inclusion which is for them to open bank accounts and keep their money in the bank, you have to ensure that at least, interest rates are at par with inflation or very close to inflation. But that’s not the case here.
“So, PFAs are really going to struggle this year. However, the equity market has come to support the yields. In the first month of the year, it was abou just under 10 per cent and in the first two weeks of the year it was touted as the best performing stock in the world.”
According to him, at the bane of PFAs’ rather gloomy 2020 performance outlook is recent restrictive policy that was implemented by the Central Bank of Nigeria. Uduanu recalled that 2019 was relatively good year for bonds and treasury bills until the apex bank came up with its OMO policy. The policy more or less restricted a large segment of investors from being able to invest in treasury bills.
Uduanu admitted to a sentiment which was previously expressed by other PFAs about the likelihood that some specific banking stock might lose their valuation. He also expressed worry over the lack of alternative asset classes to support the void this would most certainly create.
“Look, the market is driven by liquidity. We see a lot of PFAs and indeed other investors jumping into the equity market. The market has been depressed for the last three years. There are some good names that have rallied in the last few years…”
