The National Pension Commission (PenCom) has released a new directive aimed at standardizing the methodology for calculating and reporting investment performance across pension portfolios.
The circular, signed by A.M. Saleem, Head of the Surveillance Department, was addressed to all Licensed Pension Fund Operators (PFOs) and 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).
Under the new guidelines, PFAs are required to calculate the rate of return over a 36-month period and convert it into an equivalent annual rate, expressed as a percentage up to four decimal places.
For unitised funds, this involves computing the nth root of the ratio between the accounting unit’s end value and its beginning value, subtracting one, and expressing the result as a percentage.
Non-unitised funds, including Approved Existing Schemes (AES), Closed Pension Fund Administrators (CPFAs), and Additional Benefit Schemes (ABS), must adopt the Time-Weighted Return (TWR) method. This approach ensures consistency across diverse fund structures.
According to PenCom, the computation must be performed monthly using a rolling 36-month interval. For instance, to determine the annualized return as of November 30, 2024, PFAs will use the accounting unit value from October 31, 2021, as the starting point.
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.
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