Nigeria’s Pension Commission (Pencom) has finally released the amended investment guidelines for Pension Fund Asset.
‘Pension Fund Assets’ means pension asset under management and custody with licensed pension operators, according to the guidelines.
The guidelines, titled ‘Regulation on Investment of Pension Fund Assets,’ had to be further revised in response to the dynamics of the financial and regulatory environment.
According to PenCom, the major highlights of the guidelines include: the introduction of Exchange Traded Funds (a unit trust scheme or an open-ended investment company that issues unleveraged securities or units listed on a securities exchange and tracks the performance of specified securities or assets) as allowable instruments, the incorporation of Guidelines on Global Depository Receipts/Notes (GDRs/GDNs) and Eurobonds, amongst others.
Other highlights include that “The Pension Fund Administrators shall maintain Retirement Savings Account (RSA) Active’ and ‘Retiree’ Funds, as provided in this Regulation, to govern the investment of pension fund assets until effective implementation of the Multi-Fund Structure”.
The new Multi-Fund Structure for RSA Funds would be incorporated into the amended Regulation in the 1st Quarter of 2013, according to the guidelines.
This, it stated, is to provide ample time for the commencement of a public education/sensitisation campaign on the Multi-fund Structure by the Commission as well as for licensed Pension Fund Operators to be operationally ready to implement same.
Also, going forward, Pension Funds Administrators have been ordered to invest pension fund assets with the objectives of ensuring safety and maintenance of fair returns and to also recruit and retain highly skilled personnel in their investment departments.
“PFAs shall not invest Pension Fund Assets in instruments that are subject to any type of prohibitions or limitations on the sale or purchase of such instrument, except for open/close-end/hybrid funds and specialist investment funds allowed by this Regulation,” the guidelines stated, adding that they shall not trade on margin accounts with pension fund assets.
The guidelines also stressed investment limits, stating that administrators shall not engage in borrowing or lending of pension fund assets, but they can now invest in Global Depository Receipts/Notes (GDRs/Ns) and Eurobonds issued by listed Nigerian companies, as certified and approved by SEC.
Henceforth, not more than 10 per cent of the total pension asset under management shall be invested in all instruments/securities (equity, money market and debt) issued by a corporate entity and not more than 45 per cent are to be directly or indirectly invested in any one sector of the Nigerian economy as classified by the Nigerian Stock Exchange (NSE).
Also, any bank in whose money market instruments pension fund assets are to be invested shall have a minimum credit rating of ‘BBB’ by a registered or recognized Rating Company, according to the guidelines, while a discount house or corporate entity in whose money market instruments or commercial paper, respectively, pension fund assets are to be invested shall have a minimum credit rating of ‘A’ by one registered or recognized Rating Company.
The guidelines however added that if at any time an existing investment is no longer authorized as a result of credit rating downgrade, resulting in a new rating that is not more than one grade below the stipulated minimum, the pension fund may retain such investment to maturity.
The guidelines revealed that Pension Fund Assets can be invested in infrastructure projects through eligible bonds or debt securities.
However, according to the guidelines, the infrastructure project shall be not less than N5 billion in value and would be awarded to a concessionaire with good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act (ICRC Act).
As part of arrangements for performance benchmark of administrators, the quarterly and annual rates of return on all RSA Funds shall be publicly disclosed by the PFAs and the Commission, according to the guidelines.
“The annual rates of return shall be based on the audited financial statements of the Funds; and on a year rolling average performance of the Fund,” the guidelines stated.
The Commission, said it shall issue further guidelines on performance measurements in the pension industry shortly. It also added that it shall provide the necessary guidelines on the investment of Pension Fund Assets outside the territory of the Federal Republic of Nigeria as and when the need arises.
According to the Commission, the 31 page document, dated 17 December, 2012, is subject to regular reviews by the Commission.