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

MINIMUM INVESTMENT IN INFRASTRUCTURE FUNDS, PRIVATE EQUITY FUNDS AND BOND & SUKUK INSTRUMENTS ISSUED BY MDFOs – At least 75% of the pension fund assets invested in either Infrastructure Funds, PE Funds or Bond/Sukuk issued by eligible Multilateral Development Finance Organizations (“MDFOs”) was allowed to be invested in companies or projects within Nigeria under the 2012 Regulations. This threshold has however been reduced to 60% under the Amended Regulations (see sections 5.2.3(iii)(f), 5.2.11(ix) and 5.2.12(iii)).

SPECIFIED EXIT ROUTES FROM INFRASTRUCTURE FUNDS – Infrastructure Funds in which pension fund assets are to be invested were, under the 2012 Regulations, required to merely have “satisfactory predefined liquidity/exit routes”. In contrast, the Amended Regulations defines the exit routes to include “IPO, Sale to other Infrastructure Funds, Trade Sale, and Sale to a strategic investor” (see section 5.2.3(iii)(d)).

INVESTMENT IN THE ORDINARY SHARES OF UNQUOTED BUT PROPOSED TO BE QUOTED PUBLIC LIMITED COMPANIES NOW ALLOWED – By section 5.2.4(i) of the Amended Regulations, investment of pension fund assets in the ordinary shares of public limited companies is permissible, if “the issuing companies’ shares are listed/quoted on a securities exchange registered by SEC or proposed to be listed/quoted through an IPO”. This is a material departure from the position in under the 2012 Regulations which prescribed that pension fund assets could be invested in the ordinary shares of public limited companies provided, among others, that the issuing companies’ shares are listed/quoted on a securities exchange registered by the Securities and Exchange Commission (“SEC”).

INVESTMENT OF PENSION FUNDS IN A NEW COMPANY FORMED FROM COMBINATION ARRANGEMENTS OF EXISTING ENTITIES – In terms of section 5.2.4(iii) of the Amended Regulations, pension fund investments may be made in a newly established quoted company that evolved as a result of merger, acquisition or any other combination arrangement of existing corporate entities. This is however subject to the condition that, at least, one of the erstwhile companies had satisfied the minimum quality requirements for investment in ordinary shares, stated in section 5.2.4 (i) & (ii) of the Amended Regulations. This flexibility was hitherto unavailable under the 2012 Regulations.

INVESTMENT IN A NON-INTEREST COMPLIANT MONEY MARKET INSTRUMENTS – Another asset class introduced by PenCom under the Amended Regulations for investment by PFAs is non-interest (Islamic) money market instruments of banks and commercial papers of corporate entities. Stated under section 5.2.5(iii), the provision stipulates, among other conditions, that “where the investment is in a Non-Interest Compliant money market instrument, it shall be in compliance with the CBN’s guidelines for the regulation & supervision of institutions offering non-interest financial services”.