Onome Amuge
The Securities and Exchange Commission (SEC) has approved a two-year transition period, beginning September 22, 2025, for fund managers to fully adopt mark-to-market (MTM) valuation of bonds and other fixed-income securities.
The decision, while technical, could reshape how asset managers, investors, and even regulators perceive the health of Nigeria’s investment funds. For decades, many managers relied on amortized cost valuation, which records bonds at purchase price and spreads gains or losses evenly over time. The approach offered stability but often masked the real-time swings in bond values triggered by interest rate shifts, credit risk, or liquidity pressures.
By contrast, MTM accounting places securities on balance sheets at their current market value. This provides investors with a clearer picture of risk exposure but introduces a level of volatility that many fund managers have long sought to avoid.
To smoothen the adjustment, SEC has allowed a temporary 50:50 split between MTM and amortized cost valuation, relaxing the existing 70:30 rule. However, all new bond purchases after the effective date must be recorded strictly on a mark-to-market basis.
Fund managers are required to submit detailed implementation plans by October 2, 2025, outlining how they intend to transition fully before the grace period ends. The regulator’s forbearance is seen as a concession to the industry, which has expressed concerns about sudden swings in portfolio values scaring investors or sparking redemptions.
Analysts say the change reflects Nigeria’s ambition to align its capital markets with global best practices. MTM valuation, common in advanced markets, ensures investors know exactly what their assets are worth, even if those values change daily.
The shift also coincides with Nigeria’s volatile interest rate environment, where yields have spiked in response to inflationary pressures and monetary tightening. Under MTM rules, such movements will directly feed into portfolio valuations, creating swings in reported fund performance.
For retail investors, the adjustment may initially look unsettling, as paper losses become more visible on account statements. However, industry players argue that the long-term benefit lies in trust. With fair-value reporting, investors will no longer be blindsided by sudden losses when assets are sold.
The SEC’s decision is therefore seen by analysts as a test of resilience for Nigeria’s fixed-income market. They further argue that over the next two years, managers, regulators, and investors will need to adapt to a situation where numbers fluctuate more but tell a truer story of market reality.
