PenCom Lifts Suspension on PFAs’ Investment in Commercial Papers

The National Pension Commission (PenCom) has announced the lifting of its six-year suspension on Pension Fund Administrators’ (PFAs) investments in commercial papers in Nigeria. This decision, effective December 1, 2024, comes after extensive consultations and a review of the commercial paper market to ensure improved governance and risk mitigation.

Commercial papers are short-term, unsecured promissory notes issued by companies to meet immediate financing needs. The suspension, imposed in 2018, followed concerns about non-performing instruments and inadequate risk management practices in the market. The reinstatement of this investment avenue is expected to open up opportunities for PFAs while boosting liquidity in Nigeria’s financial markets.

PenCom emphasized that the lifting of the suspension aligns with its objective of ensuring the safety and sustainability of pension funds. New guidelines have been issued to PFAs, including the requirement to invest only in commercial papers with strong credit ratings from at least two recognized rating agencies. This measure aims to mitigate the risk of default and safeguard pension contributors’ funds.

The Chartered Institute of Stockbrokers (CIS) commended the decision, describing it as a major boost for capital market activities. According to CIS President Oluwole Adeosun, “This move will increase liquidity in the financial markets and offer pension fund managers more investment options, contributing to higher returns for retirees and active contributors alike.”

Market analysts also anticipate that this development will encourage corporate entities to issue commercial papers as a means of accessing short-term financing. With PFAs now permitted to invest, businesses can leverage this renewed source of capital to fund operations and growth.

PenCom’s move underscores its commitment to diversifying investment portfolios for pension funds while fostering market development. As of September 2024, the total pension assets under management stood at over ₦16 trillion, reflecting a growing pool of funds that require strategic deployment for optimal returns.

The re-entry of PFAs into the commercial paper market is expected to enhance market depth and stability while addressing liquidity challenges faced by corporate entities. Stakeholders are optimistic that this step will contribute significantly to the overall growth of Nigeria’s financial ecosystem.