PenCom opens investment window for PFAs

The National Pension Commission (PenCom) has said the fresh investment window for Pension Fund Administrators (PFAs), extending by two years the regulatory forbearance, would allow them to invest pension assets in securities issued by the parent companies of their Pension Fund Custodians (PFCs).

The move, contained in a circular released earlier this month and signed by the Director of Surveillance Department, A.M. Saleem, PenCom stressed is expected to give pension managers greater flexibility to diversify investments at a time quality investment instruments remain limited in the domestic market.

PenCom said the temporary relief would remain in force for 24 months, insisting that the policy was designed to improve investment opportunities without compromising the safety of contributors’ retirement savings.

The Commission explained that the extension was informed by prevailing realities in the financial market. According to the circular, the measure “reflects a pragmatic recognition of prevailing market realities, including operational constraints within the financial system and the limited availability of quality investable instruments in the domestic market.”

It added that the decision “would enhance portfolio flexibility and broaden the investable universe, enhance diversification, and improve PFAs’ ability to achieve optimal risk-adjusted returns in line with their fiduciary obligations.”

However, PenCom warned pension operators against treating investments linked to their custodians as favoured assets, stressing that contributors’ interests must remain paramount in every investment decision.

“The mere fact that a security is connected to a custodian must never justify preferential treatment,” the Commission declared, adding that every investment must satisfy the same fiduciary standards applicable to all pension assets.

Under the new framework, only parent companies that are licensed financial institutions regulated by the Central Bank of Nigeria, publicly quoted on SEC-recognised exchanges and with strong records of profitability, dividend payments and regulatory compliance will qualify for investment.

PenCom also imposed strict exposure limits to prevent excessive concentration of pension funds. For active RSA funds, investment in ordinary shares of a custodian’s parent company is capped at three percent, while conservative and retiree funds are limited to one percent. Bond investments are similarly capped at five percent and three percent, respectively.

The Commission further ruled that the combined exposure of an RSA portfolio to equities and bonds issued by a custodian’s parent company must not exceed five percent of its net asset value, while total exposure to all securities issued by the same company is limited to 10 percent.

In a bid to strengthen corporate governance, PenCom directed that every proposed investment involving a custodian-linked company must undergo independent review by the Investment Committee, Risk Management Unit and Compliance Department of the affected PFA before final approval is granted.

The circular also requires boards of PFAs to establish formal policies governing such investments, while investment committees must clearly demonstrate that every transaction serves the best interests of Retirement Savings Account holders and compares favourably with alternative investment opportunities.

PenCom equally moved to tighten conflict-of-interest rules by directing PFAs to maintain a formal register documenting every investment involving custodian-related entities.

Officials with any relationship with the issuing company or custodian group must disclose such interests and withdraw completely from the approval process.

To ensure transparency, the Commission ordered PFAs to file quarterly reports detailing all investments in parent companies of their custodians, while audited financial statements must disclose such exposures in language contributors can easily understand. Any breach of investment limits or financial distress involving a custodian’s parent company must be reported to PenCom within 48 hours.

The latest directive underscores PenCom’s determination to strike a delicate balance between expanding investment opportunities for pension fund managers and protecting the over ₦trillion retirement savings of millions of Nigerian workers through stricter governance, disclosure and risk management measures.