By Charles Ebi
Securities and Exchange Commission ,SEC, of Nigeria has approved a two-year transition period, starting September 22, 2025, for fund managers to fully adopt mark-to-market valuation of fixed income securities.
This means that instead of valuing bonds at their purchase price ,amortized cost, managers will gradually shift to valuing them at their current market price, which reflects the true and up-to-date value of the assets.
As part of the transition, the SEC has also granted temporary forbearance on asset-allocation rules.
The Commission’s latest directive on the valuation of fixed income mutual funds is one of the most important developments in Nigeria’s capital markets in recent memory.
For years, the industry has operated in a way that allowed managers to hide behind amortised cost accounting.
By simply holding bonds to maturity and reporting them at face value, funds were able to present a picture of stability even when market conditions had shifted dramatically.
The SEC has confirmed that fund managers must begin the transition to mark-to-market valuation for all fixed income securities.
A two-year transition period has been granted, beginning this September. During this time, new bond purchases must be reported at fair value immediately, while existing portfolios will gradually shift from amortised cost to market pricing. By September 2027, the entire industry will be on a mark-to-market basis.
This may sound technical, but the implications are profound. Many fund managers bought bonds during the ultra-low interest rate environment of the Emefiele years. Those bonds are now trading at much lower prices because yields have risen sharply.
If these portfolios were marked to market today, a large number of funds would be showing steep losses and negative performance. That is why so many in the industry have resisted this change and why a transition period was granted.
The truth is that Nigeria’s fixed-income fund industry has been able to disguise weak performance and poor risk management under the current system. Too many managers have treated portfolio management as bookkeeping rather than as an investment skill.
They buy whatever is available, at any price, and hold to maturity because they do not have to show interim results. There is no industry-wide standard for reporting performance.
Some managers publish gross of fees, some net of fees, some include accrued interest, and others highlight yield rather than total return. It has been an uneven playing field that confuses investors and makes comparisons meaningless.
Mark-to-market accounting changes that. It requires skill. It requires active management of duration, liquidity, and credit risk. It requires transparency with investors and accountability for decisions. Most importantly, it gives investors a fair and accurate picture of how their money is performing.
This reform is also about building confidence in Nigeria’s markets. Investors, both local and international, want to see accurate reporting. When funds are valued transparently, investors can make informed choices and trust the results. Over time, this will encourage more participation, improve liquidity in the bond market, and deepen the pool of capital available. Instead of locking portfolios away until maturity, managers will have to engage with the market and participate in price discovery. That is how strong, liquid markets are built.
Another important angle is financial stability. By allowing portfolios to hide behind amortised cost, risks remain invisible until a crisis forces them into the open. Mark-to-market valuation makes those risks visible earlier. This improves stability because both investors and regulators can see stress before it becomes systemic. It also sharpens price discovery in the bond market. Bonds will be valued at what they are really worth today, not at a theoretical figure from years ago. That accuracy benefits everyone.
The SEC’s decision also brings Nigeria closer to global best practice. International standards such as IFRS 9 already require fair value measurement for many financial assets. Collective investment schemes around the world mark their portfolios daily, ensuring comparability across markets. Nigeria’s asset management industry will now be reporting numbers that investors in London, New York, or Johannesburg can understand and compare directly. This alignment strengthens Nigeria’s ability to attract foreign capital and integrate more deeply with global markets.
Perhaps the most important impact is cultural. This reform forces a shift from passive bookkeeping to active investment management. Portfolio managers will need to understand duration, convexity, hedging, credit spreads, and liquidity management. It will require more training, better risk systems, and more disciplined decision-making. In short, it raises the professional bar for the entire industry. That can only be a good thing in the long run.
In earlier commentaries on the pension industry, it has been argued that transparency and fair valuation are not optional. Pension assets represent the savings of millions of Nigerians, and those savers deserve to know the true value of their investments.
The SEC’s move with mutual funds is a bold first step, but the next logical stage is for PENCOM to require that all new bond purchases by PFAs from January 2026 be booked at fair value. A Pension Fund Administrator should not be allowed to keep more than 35 per cent of its fixed income portfolio as hold-to-maturity. All new investments should be marked to market.
This strikes the right balance between stability and transparency while forcing PFAs to operate with true market discipline.
The path will not be easy. Many managers will report weaker performance in the coming months and years. Investors will be surprised when funds that once claimed steady growth suddenly show volatility and even losses. But this is how capital markets are supposed to work. Transparency creates discipline, discipline drives professionalism, and professionalism builds trust.
For too long, Nigeria’s fixed-income fund industry has operated in the shadows of creative accounting. With this directive, the SEC has switched on the lights. The days of hiding behind amortised cost are numbered.
