Vanguard (Lagos)

6 February 2013

Nigeria: New Pension Guidelines to Boost Capital Market Activities - Report

The new Pension guideline that allows pension fund administrators to invest part of their income in Exchange Traded Funds, ETFs, as well as global depository receipt will help in boosting activity in the capital market in 2013.

This was the position of analysts at Asset and Research Management Company, ARM Research, in continuation of the serialisation of their core strategy document termed 'Nigeria Strategy Report H1, 2013.'

Unlike the 2010 guideline that disallowed investment in ETFS, the current guideline just released in December, 2012 included ETF as an allowable instrument for pension fund investment.

While the 2010 pension guideline did not make provision for investment in global depository receipts/notes and eurobond, the new guideline made provision for such investment.

In case of investment in private equity, the new guideline stipulates that fund managers could retain just one percent of the assets if the fund has development finance institution as co-investor or limited partner, while three percent could be retained where the fund does not have development finance institution as co-investors or partner.

Also, PFAs are not allowed to transact more than 30 percent of total trade in equities and debt instruments in a calendar year with broker dealer firms that are related parties to PFAs, unlike the old guideline that set no limits on the total trades executed with broker dealer firms that are related parties to PFAs.

"We still hold the view that in gradually teasing PFA's--who are still the dominant block of institutional investors--away from fixed income, the new guidelines will likely underpin recent equity gains into 2013 and along with increased foreign interest could drive a substantial upward rerating of equity market valuations in 2013.

Its timing is also significant and somewhat fortuitous, since it coincides with a period when we anticipate that increased interest in Naira assets would raise the stakes on investor requirements for liquidity, which will likely become an important requirement in equities performance in coming quarters," they said in the report.

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