The Securities and Exchange Commission (SEC) has clarified that fund and portfolio managers will be required to hold regulatory capital equivalent to 0.1 per cent of Assets Under Management (AUM), correcting an earlier circular that indicated a 10 per cent requirement.
The clarification, confirmed by reliable sources within the Commission, follows strong pushback from capital market operators who warned that the initial rule could severely disrupt the investment management industry.
The Director-General of the SEC, Dr. Emomotimi Agama, is expected to formally announce the correction next week.
The revised requirement significantly lowers the capital burden on large asset managers and eases concerns that the new framework could destabilise the sector.
Under the earlier interpretation, firms managing substantial assets would have been required to raise extraordinarily high levels of regulatory capital.
As part of its ongoing regulatory reforms, the SEC has raised minimum capital thresholds across most segments of the capital market.
Fund and portfolio managers classified under Tier 1 are now required to maintain a base capital of N5 billion, in addition to 0.1 per cent of AUM for firms managing more than N100 billion.
The initial 10 per cent AUM-linked rule would have required firms such as Stanbic IBTC Asset Management, which manages over N4 trillion in assets, to raise about N400 billion in regulatory capital, far exceeding the capital base of some regional banks despite asset managers bearing significantly lower risk.
With the revised 0.1 per cent requirement, the additional capital obligation drops to about N11 billion.
Other market operators are also affected by the revised capital framework. Brokers are now required to hold N600 million in capital, dealers N1 billion, broker-dealers N2 billion, issuing houses between N2 billion and N7 billion depending on their scope of operations, and digital asset platforms N2 billion.
The deadline for compliance across all categories has been set for June 30, 2027.
While market participants have broadly welcomed the SEC’s objective of strengthening investor protection and enhancing market resilience, many operators have described the scale of the capital increases particularly for fund managers as aggressive.
A policy memorandum titled “Review of Tier 1 Fund and Portfolio Management Capital Requirements,” obtained, argues that combining a N5 billion minimum capital requirement with a high AUM-linked charge is inconsistent with the economic realities of asset management and global regulatory benchmarks.
The document emphasises that fund managers operate as fiduciary agents rather than principal risk-takers like banks, and therefore should not be subject to bank-style capital rules.
The memorandum also presents financial modelling showing that the original framework could make the business commercially unattractive.
For example, a Tier 1 fund manager with N50 billion in AUM and a 1.5 per cent management fee would generate about N750 million in revenue and roughly N350 million in profit representing a return of just seven per cent on N5 billion capital, below Nigeria’s risk-free rate.
According to the report, similar outcomes would apply to even larger managers, potentially discouraging scale, encouraging asset fragmentation, and weakening competition within the investment management industry.