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Multi-fund structure raise bar for PFAs’ strategy

The new Muti-Fund Structure recently introduced by the National Pension Commission has raised the bar for bench marking Pension Fund Administrators (PFAs) based on their returns on investment to contributors and retirees.


Prior to this multi fund structure, pension fund managers were judged not just based on their returns but also their expense ratio. Having same expense ratio now pushes the focus to their returns. PFAs must deploy strategies to enhance returns for contributors and retires, experts told BusinessDay.


A month ago PenCom released the Amended Regulation on Investment of Pension Fund Assets for the Pension Industry. The new investment guideline introduces a multi-fund structure; that replaced the existing “single-fund” structure that puts all contributors into one Retirement Savings Account (“RSA”) Fund without consideration for age or risk profile.


The Multi-Fund structure is a framework that aims to align the age and risk profile of RSA holders by dividing the RSA Fund into three Fund types while retaining the single Retiree fund (four fund types in all 3 active funds and 1 Retiree fund).


Fund 1 is allowed a maximum exposure of 75 percent of portfolio value to variable income instruments, Fund 2 can only be exposed to such instruments to the maximum of 55 percent while Fund 3 and Fund 4 will be allowed a maximum exposure of 20 percent and 10 percent respectively. In like manner, there are stipulations for minimum exposure as well.


Aside the multi fund structure, PenCom also specified the expense ratio to be charged by Pension Fund Administrators for each fund. 1.6 percent for fund I, fund II (1.4 percent), fund III (1.3 percent) and fund IV (5.00 percent).


Fund II makes up a larger proportion of the RSA registration which is about 75 percent. As at 15th august 2018, fund II price for Aiico Pensions was 3.0636, APT Pensions (2.8482), ARM Pension (3.8897), AXA Mansard (2.7341), Crusader Pension (3.9784), Fidelity Pension (2.00), First Guarantee (3.3089), IEI Anchor (2.3459), Investment One (2.4792), Leadway Pensure (3.0565), Legacy Pension (3.644), NLPC (3.4673), NPF pension (1.4718), OAK Pension (2.5805), Pal Pension (3.4572), Premium Pension (3.9797), Radix Pension (2.0235), Sigma Pensions (not available), Stanbic IBTC Pensions (3.7453), TrustFund (3.2750) and Veritas Pensions (2.6775) as complied from the website of each PFA.


According to experts, one factor that determines the performance of a fund manager is the capacity of the managers to understand the market. Based on the National Pension Commission regulation, each fund manager is supposed to structure their portfolio in a way that it meets the guidelines, offering security of the fund and earnings returns. Also, their investment strategy is another factor, that is, the ability of the fund managers to understand the markets is an important factor.

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