According to the most recent monthly data published by the National Pension Commission (PenCom), the total asset under management (AUM) of the regulated pension industry increased by 0.3% month-on-month (MoM) and 18% year-on-year (YoY) to N23.3trn as at the end of March 2025.
The MoM increase in the industry’s AUM was primarily driven by a N128bn increase in the value of FGN bonds in the portfolio to almost N13.8trn, bringing its total share of AUM assets to 59.1% from 58.7% in the previous month.
The m/m growth in AUM was also supported by an increase of around N20bn in the value of corporate debt to N2.3trn, increasing its percentage of total AUM by 10bps MoM to 10.1%.
The sizable share of FGN bonds in AUM reflects strict regulatory asset allocation rules prioritising capital safety, along with strong investor preference for fixed-income securities amid elevated yields.
Although real returns remain negative, institutional investors have continued to take on more duration risk, locking in yields at the mid-to-long end to better match their liability profiles.
This strong demand at the mid-to-long end of the curve has resulted in an inverted yield curve, with short-tenor bonds offering higher yields than longer-dated bonds, typically signalling heightened levels of uncertainty.
Illustrating this, while short-duration bonds such as the March 2026 are trading on yields as high as 21%, the yield for the longest maturity bond the Jun ’53, is around 17%.
As such, investors are being compensated more for short-maturity instruments and taking on less duration and interest rate risk.
Given the volatility around the headline inflation readings, we do not expect the monetary policy committee to cut rates in the near term.
As such, we overweight short-term instruments, particularly T-bills and 1- to 2-year FGN bonds, where risk-adjusted yields are most attractive.
For institutional investors, we recommend a barbell strategy that combines short-tenor securities with selective long-duration exposure to lock in yields and positions for potential capital gains if interest rates start to drop.
Credit: FBNQuest Research
