Emerging and Frontier Capital (EFC) has warned that the National Pension Commission’s (PenCom) N20 billion capital requirements for pension fund administrators (PFAs) may stifle long-term investment.
On September 27, PenCom announced that the new capital base for PFA licence is N20 billion, effective immediately.
In a statement on Tuesday, signed by Kato Mukuru, founding partner of EFC, the firm discussed the operational challenges that come with the new requirements.
“While we accept the logic behind the new capital requirements, they significantly change the return profiles of these businesses for their investors,” the statement said.
Advertisement
“While bearable in the short term, it may ultimately lead to under investment in these PFAs over the long term.
“Under the new capital requirements, which will force much lower dividend payout ratios, the forecasted return profiles of Stanbic IBTC Pensions and Access ARM Pensions fall by 20pps and 19pps to 26% and 27%, respectively, by FY31e (from 46% in FY24 for both companies).
“To sustain return profiles at current levels, we would propose a flat minimum capital requirement of NGN20bn.”
Advertisement
The EFC suggested considering alternative routes if the primary goals of the new capital requirements are to raise the industry’s barrier for entry and consolidation.
One alternative is to borrow a practice from the United Kingdom (UK) and set a minimum asset under management (AUM), for example N500bn for each PFA by 2030, according to the firm.
Rather than reducing the PFAs’ return profile, the EFC advised PenCom to encourage PFAs to list.
The firm added that by allowing members to benefit from their contributions as dividends, they would keep the industry highly attractive and introduce retail shareholder oversight.
Advertisement
