PFAs as the next investment destination

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…FCMB Group’s example with Legacy Pension

By Emeka Anaeto, Business Editor

If  a  pension is  deemed to be an invaluable source of income for the retired, and the Federal Government of Nigeria so motivated, introduced the Pension Reform  Act of  2004, it should  not be a surprise that within 13 years from inception, the pension industry has already risen to N6.02 trillion assets under management. The rate of growth is quite remarkable when  compared to the  125-year-old  Nigerian banking industry that stands at slightly  over N30  trillion.

Mr. Ladi Balogun, Chief Executive Officer, FCMB Limited,

Putting aside, the rapid growth of the  sector, to  what extent have the Pension Funds Administrators  delivered on the expectations of their retiring beneficiaries? What stands out  about  Legacy Pension Limited? Why has FCMB Group Plc  decided to increase its stake from 28.2%  to over 88% equity holding in this pension firm?

Market Opinions Analyst, Emefu Ibeayoka, writing from Abuja, the Federal Capital Territory  reflects on  FCMB Group’s history  from  City Securities Limited and First City Merchant Bank  to its current form of a diversified financial services group  with its deep knowledge and experience  in  the investment space. The recent announcement  on the floor of the NSE of its intention to increase participation in the pension industry  seems a natural next step for the group as the pension industry is set to rival the banking sector in terms of size and economic importance over the next  decade.

The  Pension Reform Act  has restored discipline and trust for retirement savers. It has also limited employers’ pension liability and enhanced retirement benefits administration.   No Pensioner has lost their savings due to mismanagement and the industry continues to grow at a healthy pace.

A  lot of this  credit accrues to the  National Pension Commission (Pencom). A cursory survey of stakeholders would probably score Nigeria’s pension reform and  pension industry performance high.  The only complaint seems to be coming from capital market operators and providers of infrastructure, that are  clamouring for pension fund managers  to allocate more of their resources to  these sectors in need of further development.  Looking at the volatility of our stock market and the  challenges of  power sector privatisation (due largely to non-cost reflective tariffs), we must commend the PFAs and their regulator that they have remained conservative in their investment strategy.

Further reports are quoted to reveal that  in spite of the macro-economic headwinds experienced  last year, the Nigeria Pension Industry’s AUM grew by 16%, one percent higher than growth in the previous year. Despite the contraction in monthly contributions, growth in AUM was largely driven by the higher yield offered in the fixed income market. Figures from May 2017, Nigeria Pension Industry Survey  revealed 12.1% of respondents have  decided to move to another PFA when the transfer window opens whilst 35.4% remain undecided. The level of competition amongst PFAs in Nigeria is set to intensify, with the opening of the transfer window and implementation of the Micro  Pension Scheme (MPS).

FCMB Group’s  announced intention to  acquire a super majority  of Legacy Pension Limited  will broaden its service  offerings with the group already offering commercial  and retail  banking,  investment banking,  asset management,  and  trusteeship services.  The successful completion of this transaction  will  bring FCMB Group’s shareholding in the company to 88.2%, thus becoming its largest shareholder.  The development follows months of  negotiations, regulatory reviews, approvals and pending final clearances of all relevant authorities.

It is on record that FCMB Group Plc, which is a holding company,  has one of the richest pedigrees in financial services in Nigeria. The broadening of its holdings to include a controlling stake in a PFA will  most certainly open a new vista  of  growth and stability to its income streams.

The bank’s  reported  4 million customers, 200+ branch network and strong digital presence are fertile grounds for the rapid growth of this new addition to its portfolio.

On the other hand,  Legacy Pension Managers  Limited,  whilst being a conservative player with a strong presence in Abuja and the North has  steadily grown its assets under management to over  N220 billion.

The company  has maintained a strict investment policy and achieved decent returns since inception.  Co-incidentally, FCMB Group’s equity mutual fund (known as the Legacy Equity Fund),  won the  BusinessDay  Best Managed Fund (Equity Based)  Award  in October  2017, returning  52% year to date.

It is expected that FCMB’s over 40 years of investment  experience will complement and enhance Legacy Pension Managers proposition to existing and prospective customers.

With the  synergies from enhanced distribution and investment expertise, analysts have hailed the decision of FCMB Group to acquire majority stake in Legacy Pension Managers by describing it as  a significant development that would  not only  shake up  the pension industry, but also enhance the future performance  of FCMB Group.

Analysts anticipate that Legacy Pension Managers will be better positioned to grow its market share, compete effectively upon the onset of  Retirement  Savings Account portability, and also enter the micro-pensions segment in the informal market that will  leverage  the distribution and marketing muscle  of  a  commercial  bank  within the group. These are interesting times for FCMB Group, Legacy Pension Managers and the pension industry as a whole.

 

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