The Securities and Exchange Commission (SEC) has educated investors about mark-to-market, while assuring them that their investments are safe, following agitation over its directive for fund managers to adopt the Fair Value through other comprehensive income, or mark-to-market valuation approach of portfolios.
According to SEC, the move is to seek the protection of all classes of investors and the market’s integrity by ensuring a fair and transparent playing field so that both investors and operators are protected.
Director-General of the SEC, Daniel Ogbarmey Tetteh, explained that fund managers have witnessed a sharp increase in redemption requests, fuelled by the prevailing high-interest rate regime as well as a desire to seek safety in alternate asset classes such as currency and precious metals. This, he said, elevated the need for fund managers to sell at a loss securities which would otherwise have been held to maturity.
“The SEC has taken note of the current high-interest rate environment in Ghana with its adverse effects on liquidity in the secondary market for bonds, and high clients’ redemption requests; necessitating the sale of investment securities ordinarily designated as held to maturity.
“In the situation such as we have currently, wherein interest rates have gone up and bond prices have fallen, if you do not mark-to-market and investors want to exit for whatever reason, perhaps due to panic, you do not let the investor see the investment’s value currently as it does not reflect current market conditions.”Daniel Ogbarmey Tetteh
The SEC boss further stated that while investors risk losing a portion of their holdings due to current market conditions, a phenomenon that is accurately captured through the mark-to-market model, it does not amount to a ‘haircut’ with investors better-off holding closer to maturity.
“What people need to understand is that there is a difference between unrealised gain and unrealised loss. For instance, if I have invested GH¢100,000 and today the fund manager shows me that based on market conditions the value has dropped to GH¢90,000; if I stay put and I do not panic and check out, and the market corrects– which it does in the long-run, I do not realise the loss. It is a loss on paper; but if I panic and leave, then I lock-in and make the loss a reality and the mark-to-market method makes this very clear… It is far different from the conversation on haircuts, as this is just asking for a fair, transparent method for everyone to see the true value of these assets.”Daniel Ogbarmey Tetteh
SEC Directs Stakeholders
Meanwhile, the SEC has directed stakeholders, Fund Managers, Custodians, and Trustees, to obtain prices available from the Ghana Fixed Income Market (GFIM) for all listed fixed income securities to enable pricing of securities to reflect market values.
“The Ghana Fixed Income Market (GFIM) shall make available end-of-day prices for all fixed-income securities in 2023. In the interim, Fund Managers, Custodians and Trustees are directed to use average prices published by GFIM to mark-to-market their fixed-income securities. Unlisted securities shall be valued periodically, taking into account market movements, contractual cashflows and recoverability of the underlying assets.”Daniel Ogbarmey Tetteh