In a decision aimed at broadening investment opportunities for pension funds, the National Pension Commission (PenCom) has lifted the restriction on Licensed Pension Fund Administrators (LPFAs) from investing in commercial papers where capital market operators act as Issuing and Paying Agents (IPAs).
The Commission also directed LPFAs to also ensure that appropriate legal and financial due diligence are undertaken on all prospectus/offer documents of all commercial papers prior to investment.
PenCom had in a 23 October, 2024 directed all Licensed Pension Fund Administrators (LPFAs) to immediately suspend further investment in commercial papers where capital market operators (non-banks) are engaged as Issuing and Paying Agents (IPAs) due to the absence of rules governing the issuance.
PenCom in a circular again on Tuesday noted that Securities and Exchange Commission (SEC) has developed draft rules and an amendment to rule eight (Exemptions) to regulate the issuance of commercial papers by its regulated entities.
“Accordingly, SEC is addressing PenCom’s concern about the role of non-bank IPAs in commercial paper transactions by bringing them within regulatory boundaries, PenCom said.
Investment analysts in some of the PFAs who commented when the restriction was announced said prohibiting them from investing in such financial instruments will limit their ability to explore more flexible and potentially higher-yielding investments.
Read also: PenCom, operators plan CPS migration to micro pensions
Commercial papers are short-term, unsecured debt instruments typically issued by corporations to raise funds for immediate needs, and they are an essential component of the capital markets.
“By lifting the restriction, PenCom hopes to promote better liquidity management for pension funds while ensuring the safety and sustainability of investments, an investment analysts said
“Capital market operators, including investment banks, are poised to benefit from this change, as they can now act as IPAs for these commercial papers, further deepening the country’s capital market activities.”
With LPFAs now allowed to invest in these instruments, a new chapter opens in the pursuit of better returns for pension beneficiaries.
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