The Securities and Exchange Commission (SEC), has allayed fears of the investing public, explaining that the objective of its latest directive on the use fair value/mark-to-market valuation method in valuing portfolios of collective investment schemes such as unit trusts and mutual funds, was to provide consistency in the valuation of assets and portfolios in the securities industry.
It said it was also to ensure that the portfolios reflect market values, as well as investors of Collective Investment Schemes (CIS).
“This is not a new valuation methodology, it is something that some of the market operators have been practicing, and we gave this directive because we want some uniformity in the marketplace.”
“What the directive means is that if you are already using that methodology to value your stocks in your portfolio, you have your quantity versus the price. So what it means is that you want to see the market value of those securities that you have in your portfolio. So it shows the prevailing market prices of the securities,” a Senior Manager at SEC, Anthony Dugbartey explained to the Graphic Business, following agitations by investors about what they see to be a ‘haircut’ on their investments.
He added that “it means that if you should sell bonds today and you sell at a discount, what value is the total bonds you are holding in your portfolio?”
“So when you exit, that is when you are likely to be affected by the directive. Otherwise, you don’t get affected because this will just be in your books. Even if you are holding bonds directly and you want to sell before maturity, obviously you will not get the full value of the bonds you are holding,” he said.
SEC directive
SEC directed fund managers, custodians and trustees to use fair value/mark-to-market valuation method in valuing portfolios of collective investment schemes such as unit trusts and mutual funds.
This new method, which took effect on November 1, 2022, is to make all investments reflective of prevailing market values on the capital market and will result in some changes in the value of clients’ holdings.
The use of the new method is due to the current market developments caused by the macroeconomic environment and its impact on underlying assets (particularly GoG bonds) which are currently trading at discounts.
Interpretation
The directive by SEC appears to be causing some fear and panic among some customers of these market operators, some of whom have received notices from their institutions that the use of the new method may result in some losses when a withdrawal is made now.
Some of them who spoke to the Graphic Business were of the view that the directive was in contrast to President Akufo Addo’s assurance that there would be no ‘haircuts’ on investments as a result of the current macroeconomic challenges.
But speaking in an interview with the Graphic Business, the Director General of SEC, Rev. Daniel Ogbarmey Tetteh, urged calm and asked investors not to get ahead of themselves.
He said details of the government’s engagements with the International Monetary Fund (IMF) was not yet out and reiterated the government’s commitment to protect the domestic financial sector under an IMF programme.
“We need to remain calm and avoid panic reaction at this time. Debt restructuring doesn’t necessarily mean a haircut; it could be prolonging maturities of existing debt.
“So let’s wait for the details. The good thing is that the government is having series of engagements with various stakeholders to ensure a solution that makes sense for all,” he stated.
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