The National Pension Commission (PenCom) has extended its regulatory forbearance allowing Pension Fund Administrators (PFAs) to invest in a wider range of securities issued by the parent companies of their respective Pension Fund Custodians (PFCs).
In a circular signed by A.M. Saleem, director, Surveillance Department, PenCom said the extension was designed to provide greater investment flexibility for pension operators while responding to prevailing market realities, including limited availability of quality investment instruments in the domestic market.
The Commission said the measure would help broaden the investment universe available to PFAs, improve portfolio diversification and support their ability to achieve optimal risk-adjusted returns in line with their fiduciary responsibilities.
The regulatory forbearance will remain in effect for 24 months.
Under the new guidelines, PFAs may invest pension funds in equities and financial instruments issued by the holding companies of PFCs, provided the parent company is a financial institution licensed by the Central Bank of Nigeria (CBN), is listed on a Securities and Exchange Commission (SEC)-recognised securities exchange, and has demonstrated financial soundness.
PenCom stated that eligible parent companies must have a track record of profitability, dividend payments, regulatory compliance and no unresolved enforcement actions.
However, the Commission introduced limits aimed at managing concentration and related-party risks associated with such investments.
For ordinary shares issued by a PFC’s parent company, PFAs managing Funds I, II, VI-Active and VI-Growth can invest a maximum of three per cent of pension assets, while Funds III, IV, VI-Retiree and V-Conservative are limited to one per cent.
For bonds issued by a PFC’s parent company, exposure is capped at five per cent for Funds I, II, VI-Active and VI-Growth, and three per cent for Funds III, IV, VI-Retiree and V-Conservative.
The Commission further stated that the combined exposure of Retirement Savings Account (RSA) Funds to equities and bonds issued by the parent company of a PFC must not exceed five per cent of the RSA portfolio’s consolidated net asset value.
Additionally, total exposure to all securities, including money market instruments issued by the parent company of a PFC, must not exceed 10 per cent of the consolidated net asset value of the RSA portfolio.
PenCom said the limits were necessary to prevent excessive concentration in a single entity and reduce potential contagion risks.
The regulator also strengthened governance requirements around such investments, directing PFAs to subject proposals involving PFC-related securities to independent reviews by their Investment Committee, Risk Management Unit and Compliance Department before execution.
According to the circular, PFAs must document how such investments serve contributors’ interests, assess possible concentration, correlation and liquidity risks, and ensure compliance with regulatory requirements.
The boards of PFAs are also required to establish policies governing investments in securities issued by the parent companies of their custodians, with final approvals granted in line with approved board investment frameworks.
To address possible conflicts of interest, PenCom directed PFAs to maintain a PFC-Party Conflict Register covering investments involving custodian-linked entities.
The register must capture the nature of relationships, individuals involved in decision-making, conflict declarations and mitigation measures.
The Commission also introduced enhanced disclosure requirements, mandating PFAs to submit quarterly reports detailing their holdings in the parent companies of their PFCs, including acquisition dates, valuation basis, percentage net asset value exposure and changes from previous reporting periods.
PenCom said any breach of exposure limits or financial distress involving a PFC’s parent company must be reported to the Commission within 48 hours.
The regulator noted that the disclosure framework is aimed at ensuring greater supervisory oversight and transparency for pension contributors.
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