PenCom Releases The Amended Regulations on Investment of Pension Fund Assets, 2017

  1. INVESTMENT IN EUROBOND, GDRs AND GDNs – The Amended Regulations introduce different eligibility requirements for Global Depository Receipts (GDRs) and Global Depository Notes (GDNs) issued in other country and Naira-denominated GDRs/GDNs. Eligible and Federal Government-guaranteed Eurobond, GDRs and GDNs remain allowable instruments under the Amended Regulations but the regulations have been relaxed for foreign issuances. Under the 2012 Regulations, to qualify as an eligible instrument for investment by PFAs, GDRs or GDNs and Eurobond issuances were required to be registered and approved for issuance to Nigerian investors by the SEC, in addition to the required regulatory approvals that would be obtained in the country where the instruments were to be issued. However, under the Amended Regulations, only Naira-denominated GDRs and GDNs are now required to be approved by the SEC and be compliant with other SEC Rules (see section 5.2.13(iii & iv)).

Changes In Performance Benchmark

The quarterly and annual rates of return on all RSA Funds were, under the 2012 Regulations, required to be publicly disclosed both by the PFAs and PenCom without specifying the mode of such public disclosure. However, under section 9.1 of the Amended Regulations, only PFAs are now required to make the public disclosure on their websites.

Further, under the 2012 Regulations, the annual rates of return were to be based on the audited financial statements of the Funds; and on a 3-year rolling average performance of the Fund. The new regime under section 9.2 of the Amended Regulations is that the annual rates of return were to be based on the audited financial statements of the Funds; and on a 3-year Compound Annual Growth Rate (CAGR) of the Fund.

Concluding Remarks

With the release of the Amended Regulations, we believe that the Federal Government has taken a significant and commendable step towards unlocking the investment potentials of pension fund assets in Nigeria. Indeed, the newly-introduced Multi-Fund Structure presents PFAs with increased opportunities to make targeted and well-tailored investments and also spread the risks usually associated with undiversified portfolios. It is thus expected that the inclusion of new asset classes in the list of Allowable Instruments will widen the investment horizon for PFAs. 

However, with the reduction in the percentage threshold of the pension fund assets allowable for investment in Infrastructure Funds, it remains to be seen how this veritable, home-grown, patient capital can be utilized for the widespread call from many quarters for plugging Nigeria’s huge infrastructure gap. Nonetheless, it is anticipated that pension funds will boost activities/transactions in the money and capital markets, going forward.

 

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