With a shortage in attractive investment opportunities in Nigeria amid the low yield environment, mutual fund and pension fund managers are now stuck with T-bills even though the return on investment has plunged to below 1 percent, a survey by Businessday shows.
Faced with the double challenge of limited attractive investment instruments and the investment compliance regulation by the Securities and Exchange Commission (SEC), and the National Pension Commission (Pencom), both pension and mutual fund managers are almost handicapped in delivering good returns to their contributors.
While a fund manager’s skill is a contributing factor in producing a good return on investment as it has the responsibility of implementing a fund’s investing strategy and managing its portfolio, a fund’s performance has a lot to do with market forces and in this case, it is not looking good in Nigeria.
“Even though we are trying our best, there is little that we can do. T-bills have always been our best option but with the current rates some managers are even dumping it,” a pension fund manager who pleaded anonymity said, adding that “contributors are going to get less return.”
While interest rates have always been high in Nigeria due to the monetary system in vogue since 2009 which sought to use FGN bonds/t-bills and OMO bills as a means of attracting dollar to stabilise the naira, the recent OMO policy by the central bank which prevents domestic investors from participating in the auction, has sent yields to its worst record.
Yields on both T-bills and bonds instruments have hit a bottom record from a double interest rate enjoyed some four years ago.
“There is limited investment alternative that is Pencom and another regulation complaint,” Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank said, adding that many of the fund managers “are stuck with T-bills.”
Analysis of the result of the Nigerian Treasury Bills (T-bills) auction conducted Wednesday by the Central Bank of Nigeria (CBN) on behalf of the Federal Government of Nigeria, shows that more than N667 billion worth of unsuccessful transactions were recorded following the excess liquidity in the market bidding for limited bills.
While investors bid at rates as low as 0.18 percent, 0.4 percent and 2.3 percent on the 91-day, 182-day and 364-day bills respectively, the central bank settled it stop rates at 0.34 percent, 0.5 percent and 0.98 percent for the 91-day, 182-day, and 364-day maturities, respectively. A further drop from the previous stop rates auction of 1percent each recorded for the 91-day and 183-day and the 2 percent for the 182-day in the previous auction.
With a 30 month-high inflation rate at 13.71 percent in September, real return on investment for T-bills plunged to -13.37 percent for the 92day instrument, -13.21percent for both the 182-day maturity while the longer 364-day instrument has a real return of -12.73 percent.