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By: Jacinta Hycenth, Abuja
The National Pension Commission (PenCom) has issued a new directive designed to standardize the methodology for calculating and reporting investment performance across pension portfolios.
This was contained in a circular signed by A.M. Saleem, Head of the Surveillance Department, and issued to all Licensed Pension Fund Operators (PFOs), which took effect from July 1, 2025.
The circular outlines a comprehensive framework designed to enhance transparency, promote long-term investment strategies, and reduce short-term decision-making among Pension Fund Administrators (PFAs).
According to the new regulations, PFAs must determine the rate of return over a 36-month span and translate it into an equivalent annual rate, expressed as a percentage with precision to four decimal places.
For unitised funds, this process entails calculating the nth root of the ratio between the terminal value and the initial value of the accounting unit, subtracting one, and presenting the outcome as a percentage.
Non-unitized funds, encompassing Approved Existing Schemes (AES), Closed Pension Fund Administrators (CPFAs), and Additional Benefit Schemes (ABS), are required to implement the Time-Weighted Return (TWR) method. This strategy guarantees uniformity across various fund configurations.
As stipulated by PenCom, the calculation must be executed monthly utilizing a rolling 36-month period. For example, to ascertain the annualized return as of November 30, 2024, PFAs will employ the accounting unit value from October 31, 2021, as the initial reference.
Importantly, the opening values used in these calculations must correspond to periods that have been audited and approved by PenCom.
In addition to performance metrics, PFAs are now mandated to report the Sharpe Ratio for each fund.
This ratio will be calculated using the three-year average yield of the 10-year Federal Government of Nigeria (FGN) bond as the risk-free benchmark, alongside the fund’s standard deviation.
Monthly performance reports must be published on each PFO’s website no later than the 10th day of every month.
The circular supersedes Sections 6.0 to 6.4 of the existing Regulation on Valuation of Pension Fund Assets. All inquiries regarding the directive should be directed to the Head of the Investment Supervision Department.
“This circular is intended to ensure transparency and encourage sustainable, long-term investment strategies by minimizing short-term decision-making,” the Commission stated.
