Investment Management Guidelines

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Investment Management Guidelines

  1. 1. CRUSADER PENSIONS LTD INVESTMENT MANAGEMENT DEPARTMENTAL GUIDELINES AND MANUAL OF OPERATING PROCEDURES
  2. 2. Contents 1. Introduction and overview 2. The Committees 3. The Investment Department 4. Regulation 5. Goals & Objectives 6. Our Investment Principles 7. Our Investment Strategy 8. Asset Allocation Policy 9. Investment Periods & Types 10. Investment Procedures Investment Analysis Data, information sources & tools Asset allocation Risk Management & Control Diversification Investment limits Approval limits Broker list Reports Valuation policy & procedure Investment recognition policy 11. Appendix 2
  3. 3. Introduction and overview This document constitutes the Operations Manual of the Investment Management Department of Crusader Pensions Ltd (CPL) and is designed to serve as a compass for the day-to-day activities of the Investment Management Department to enhance the professionalism of the members of staff of the Department. These guidelines are to provide the basis on which investment activities of Crusader Pensions Ltd will be carried out. The manual is aimed at achieving the following objectives: I. To enable staff of the Department and indeed CPL to read and attain first hand knowledge of the nature and activities of the Division. II. To give all the staff some understanding of the investment landscape, the principles, policies, strategies and opportunities in the market. This will, no doubt, put them in a position to understand the existing pitfalls and hardships in the immediate business environment hence the level of performance of such companies, at each point in time, will be easily appreciated. (iii) To equip staff of the Division with the knowledge and techniques of advisory services and implementation of recommendations made. (iv) To acquaint staff with the operations and workings of various international institutions, which require specialized financial services. The broad investment policy as stipulated in the Pension Reform Act 2004 shall be determined by the Board of Crusader Pensions Ltd and circulars issued by the National Pensions Commission (PenCom). Investment management is at the core of Crusader Pensions Ltd‘s business. The investment department is responsible for the investment management function of Crusader Pensions Ltd. The department amongst other things is responsible for implementing and monitoring investment activities of the company. It is also responsible for: a) Implementing investment policy and strategy as laid down by the Pensions Reform Act 2004, guidelines issued by PenCom, the Board, the Investment Strategy Committee and the Risk Management Committee; b) Researching investment opportunities and their underlying instruments; c) Buying, managing and selling investments; d) Reporting to the Managing Director & CEO, Investment Strategy Committee and the Risk Management Committee; e) Performance measurement and analysis; f) Participating in marketing and pitching for new & retention of RSA Accounts, AVC Accounts and Closed Pension Fund Accounts. 3
  4. 4. The Committees 1. The Investment Strategy Committee By virtue of s66 of the Pensions Reform Act 2004, we have established an Investment Strategy Committee that shall a) formulate strategies for complying with investment guidelines issued by PENCOM; b) determine an optimal investment mix consistent with the risk profile agreed by our Board of Directors; c) evaluate the value of the daily marked-to-market portfolios and make proposals to the Board of Directors; d) on a periodic basis, review the performance of the major securities in our investment portfolios; e) carry out such other functions relating to investment strategy as the Board may from time to time determine. The Committee has formal terms of reference set by the Board, which are reviewed regularly. Membership of the committee comprises: 1. Olutola Mobolurin - Chairman 2. Gabriel O. A. Oyelami 3. Suraj Yakubu 4. Lanre Adesanya 5. Tofarati Agusto 6. the Managing Director & CEO 7. with the Head of Investments in attendance. Regular meetings of the members of this committee shall be held as determined by the Board of directors but in any case no more than 3 months shall elapse between meetings. The presence and participation of not less than 4 committee members shall constitute a quorum of which at least 2 members shall be non-executive directors. 2. The Risk Management Committee By virtue of s66 of the Pensions Reform Act 2004, we have established a Risk Management Committee that shall a) determine the risk profile of our investment portfolios; b) draw up programmes in case of deviation; c) determine the levels of reserves to cover the risks of the investment portfolios; and d) carry out such other functions relating to risk management as The board may determine from time to time. The Committee has formal terms of reference set by the Board, which are reviewed regularly. Membership of the committee comprises: 1. Babatunde Dabiri - Chairman 2. Gabriel O. A. Oyelami 3. Niyi Falade 4. Mr. Ameh 5. Benedikta Moloku 6. the Managing Director & CEO 7. with the Head of Investments and Head of Compliance & Risk Management in attendance. Regular meetings of the members of this committee shall be held as determined by the Board of directors but in any case no more than 3 months shall elapse between meetings. The presence and participation of not less than 4 committee members shall constitute a quorum of which at least 2 members shall be non-executive directors. 4
  5. 5. 3. The Management Investment Committee The Management Investment Committee has been established to ensure approval of investments in line with approved investment guidelines. Membership of the Committee shall comprise: 1) Managing Director & CEO – Chairman; 2) Head of Investments; 3) Head of Marketing; 4) Head of Operations; 5) Head of Finance & Accounts 6) Head of Compliance & Risk Management Investments are subject to approval of the Management Investment Committee and shall exercise discretionary approval power on investments of not more than N500m, with such approval being subsequently reported to the Board of Directors through the Investment Strategy Committee. Meetings Management Investment committee meetings provide a forum for the discussion of policy, market strategy and the continuous assessment of the overall risk of the portfolios. Regular meetings of the members of this committee shall be held weekly. The presence and participation of not less than 4 committee members shall constitute a quorum with at least the MD/CEO or his representative and the Head of Investments or his representative in attendance. The committee meeting shall: a. Review and approve investments within the limits approved by the Board; b. Review the portfolios; c. Review, assess and approve new investment ideas; d. Review performance e. Review and approve investment, counterparty, broker and other limits f. Any other business Committee decisions shall be by simple majority. However, the Chairman shall have veto on all investment decisions. 5
  6. 6. The Investment Department The Board of Crusader Pensions Ltd depends on the staff of the Investment Department in fulfilling the company‘s investment responsibilities. The Head of Investments The Head of Investments shall have day-to-day responsibility for the Investment Department. The incumbents‘ role would involve, but not limited to the following: Investments Act as ―prudent expert‖ on behalf of the Crusader Pensions Ltd; Develop and recommend investment policy and strategy for the management of pensions funds saved with Crusader Pensions Ltd; Implement and monitor investment strategy; Establish, implement and monitor asset allocation; Value, monitor and assess the funds assets and liabilities; Setting investment styles; Day-to-day management of the investments, including: o Evaluating market conditions; o Developing and executing strategies; o Executing trades; o Preparing monthly reports; Evaluate the results of the investment policies and performance of the portfolios; and Update and maintain this document. Investment policies, which comprise of such things as: Where to invest – Companies, Sectors, Countries etc; What instruments to invest in – Equity, Bonds, Property, private equity, funds, etc; How to invest – directly/indirectly (including using funds/specialist managers). Investment strategies, such as Tactical and Strategic asset allocation; Investment styles - growth, value, income, hedging, active, passive, local/international exposure etc; Setting the investment process – Top down / Bottom up approach to investment analysis, fundamental/technical analysis, asset selection, portfolio construction; Tax considerations. Performance To determine, implement and monitor investment performance; Report appropriately investment performance to superior management and members and/or other interested parties. Administration Investment proposals, analysis and presentation. Both giving and receiving; Staff training and development; Budgeting – income and expenditure; Building and maintaining client, staff and professional relationships; Staff recruitment, appraisal, training and development. 6
  7. 7. Other Staff of the Investment Department Other staff of the department shall comprise of: 1. Fund Managers and Assistant Fund Managers 2. Investment/Research Analysts The department shall be staffed with suitably qualified personnel to help carry out its functions. The following minimum requirements have been established to ensure qualified people are hired to fulfil those responsibilities: A fund Manager/investment analyst within the Investment Management Section is required: To be a graduate with a minimum of 2:1 for a university degree or upper credit for a polytechnic diploma; in addition; To be Chartered Financial Analysts (CFA). If a fund Manager/investment analyst is not a CFA at the time of hire, the fund Manager/investment analyst shall enrol in a program to attain the designation. The fund Manager/investment analyst must earn the designation within five and one-half years of enrolling in the program. Such functions to be carried out by staff include but are not limited to: Analysing and reporting on financial and non-financial information; Fundamental investment & economic analysis of the country, markets, companies, sectors, funds and investment instruments; Sourcing, analysing and filing economic, company, industry and other reports and data to aid the investment process and decision making; Perform bottom up/top down investment analysis by: o analysing companies and their financial statements (in full); o analysing industries and its participants; o Business analysis; Writing investment reports; Producing and analysing Portfolio reports to ensure adherence to internal & external requirements; Placing buy/sell orders with brokers and ensuring accurate execution; Recording such data in departmental trade log; Ensuring settlement of trades by liaising with the investment operations department; Other adhoc duties as may be prescribed by: o the Board of Directors; o the Investment Strategy Committee; o the Risk Management Committee; o the Managing Director & CEO. Fiduciary Responsibilities of Investment Managers Investment Managers have a fiduciary responsibility for the assets placed under their discretion. The Investment Department (fund managers/investment analysts), when investing funds or otherwise acting on behalf of a fund, must act in the sole best interest of the beneficiaries of that fund. In most instances, this duty of loyalty requires that investment decisions be directed solely toward the goal of generating income and capital gain. 7
  8. 8. Prudent Investor Process To fulfil its obligations under the modern Prudent Investor Rule, it is extremely important for the Department to carefully follow a well-articulated, written investment process with respect funds that it manages and to adopt and maintain up-to-date written investment policy statements (IPS) for each fund. This publication, and its periodic revision, is intended to fulfil that obligation. Following is a summary of the prudent investor process the Department currently employs: 1. Analyze the current situation pertinent to each fund regularly and often when prudence so requires by Conducting a fiduciary audit of each fund; Reviewing the legal and administrative constraints pertinent to each fund; Reviewing the assumptions pertinent to subscriptions, redemptions and disbursements from each fund; Reviewing the current investment strategies and policies; Conducting an analysis of the current asset allocation and investment activities; and Reviewing the costs of managing the portfolio. 2. Design the optimal portfolio. Propose various optimal asset allocation strategies based on established and agreed guidelines; Address strategic (long-term) and tactical (short-term) investment strategies against the backdrop of all approved markets and instruments available; and Analyze the investment alternatives based upon the concepts of modern portfolio theory. 3. Formalize the investment policy. Set or modify investment policy and implementation guidelines in the written Investment Policy Statement (IPS); Once the IPS is prepared, follow it rigorously; Reanalyze the pertinent options any time that that PenCom contemplates allocating assets to an asset class not specified in the IPS; and Rewrite the IPS if the PenCom allows investments in a new asset class. 4. Implement the investment policy. Consider a number of alternative styles or strategies within each broad asset class; Analyse investments using both financial and non-financial information; Coordinate and monitor custodial and brokerage services; (note custody is not a CPL function but a detailed reconciliation of assets with the PFC is required to ensure we are managing and dealing in securities in the portfolios.) 5. Monitor and supervise the portfolio. Provide ongoing supervision of the investment program; Prepare a detailed monthly appraisal of consolidated holdings and portfolio transactions; Prepare periodic performance attribution reports comparing the performance of the portfolio against appropriate benchmarks, stated investment objectives and investment managers of similar style; Check the asset allocation to make sure it conforms to the limits specified in the IPS, internal guidelines, PenCom guidelines and rebalance the portfolio if necessary; and Monitor and control investment expenses and costs. Upkeep and Compliance with This Publication Assuring that the Department (1) follows the policies and procedures set forth in this publication and (2) modifies those policies and procedures when appropriate are key elements in guaranteeing that the Department fulfils its fiduciary responsibilities. The Board through the MD/CEO assigned responsibility to the Head of Investment for ensuring that the Department follows these policies and procedures, and for modifying them as necessary. 8
  9. 9. Investment Philosophy Our mission is to provide an unrivalled investment management service to our pension fund savers by focusing our efforts in gaining and maintaining clear investment policies and strategies to give us a clear competitive advantage. Such competitive advantage would be a function of the quality of our investment management team supported by infrastructure focused solely on Pension fund investment management services. Our investment philosophy can be presented as two simple rules: Rule number one: Don‘t lose capital Rule number two: Don‘t forget rule number one. Our approach includes performing three activities everyday: Read Research; and Think (at Crusader Pensions we value and encourage independent thought). Investments are targeted that are likely to achieve excess absolute returns in the medium to long term. In order to monitor investment management activity, internal procedures require the investment management team to adhere to a broad systematic investment process. Significant resources are employed to ensure each Pension fund investment vehicle is managed within the appropriate risk parameters and investment guidelines. Extensive attribution of returns is applied to constantly monitor performance relative to benchmarks and peer groups. Investment Strategy The core of our Pension fund investment vehicles will consist of long-term holdings which are considered to be stakes in businesses, selected on the basis of a 70% bottom-up and 30% top-down research driven approach. There is no ‗black box‘ investment system and the selection process is on an asset by asset basis. Portfolios will take into account guidelines and limitations imposed on us by The National Pension Commission (PenCom). Investments are made in a broad spectrum of instruments, sectors, industries and companies and in selecting these, the following factors are considered: income and/or income generating capacity; competitive position in their respective markets/industry ; technology; research and development; productivity; commitment to increasing shareholder value; cashflow; and management and corporate governance; relative and absolute valuation measures, to name a few In addition to long-term core holdings the funds will also participate in shorter-term opportunistic investments, in market driven transactions as warranted by valuation (e.g. capital increases; rights issues, etc). Investments and shares of companies with a propensity to repeatedly destroy shareholder/investment value and returns, and of companies about to be exposed to a cyclical sectoral correction, will be avoided and/or sold. The Crusader Pensions investment management team will spend time making company visits and attending company presentations. Company profiles are recorded in the investment department‘s database and updated regularly though follow-up calls or visits. Selective consultations will be made with leading external analysts and strategists as well as industry/sector/market consultants. The whole team during investment meetings formally appraises research. Investment selections are based on relative and absolute valuations. The final decision is likely to be strongly influenced by judgement of the quality and motivation of the company‘s management and the economic environment. Low p/e ratio relative to market and peers PEG (price earnings growth) 9
  10. 10. Low price to sales ratio High or above average dividend yield Volume Index correlation (positive or negative) Relative returns, compared to index & peers Risk ratings (standard deviation) Relative Valuation: Absolute Valuation: Profitability Factors: Ratios analysed: Valuation/Ratios analysed: Ratios analysed:  Enterprise Value/Sales;  Discounted Cash Flow;  Asset Turnover;  Enterprise Value/Earnings  Economic Value Added;  Sales Margins; Before Interest Tax  Break-up Value/sum-of-  Profit margins; Depreciation and the-parts;  Return on Capital Amortisation (EBITDA);  Price/Book Value. Employed;  Enterprise Value/Capital  Net Asset Value  Gearing; Employed;  Dividend Discount Model  Return on Equity  Price/Cash Flow; Valuation  Price/Earnings;  Price/Earnings Growth Investment Principles Sustained success requires skill and consistent application of sound principles and our investment principles can be summed up as follows: We know what we own We research before we buy/sell Price is what we pay, value is what we get We invest for the long term We blend passive with active management Our success greatly depends on a combination of hard work, intelligence and honesty. Investment goals and Objectives The Investment objectives of Crusader Pensions Ltd is to maximize investment returns through long-term capital growth using value oriented research driven approach methods whilst ensuring and retaining the safety of the funds; the preservation of capital; stability; and diversification - depending on fund approach, diversify the portfolio across asset classes, sector, markets, and styles. All moneys will be invested in accordance with this statement as well as adhere to the portfolio investment objectives, e.g. risk/return target, market exposure. Ongoing Portfolio Management The Investment Department will use a dynamic portfolio management process to actively manage portfolios. In doing so shall give weight to The historical volatility and downside risk of each investment; Past performance, considered relative to other investments having the same investment objective. Consideration shall be given to both performance rankings over various time frames and consistency of performance. Periodic Portfolio Re-balancing Take advantage of new investment opportunities Keep asset allocations consistent with expected return and volatility Reallocate profits Monitor changes in fundamentals that limit return potential Monitor changes in key personnel or in the organisation 10
  11. 11. 11
  12. 12. Asset Allocation Policy Crusader Pensions Ltd will maintain an active asset allocation strategy by investing for the long term; making strategic allocations to new investment opportunities position the portfolio to take advantage of current market opportunities and risks. After reviewing the long-term performance of and risk characteristics of various asset classes and balancing the risks and rewards of market behaviour, assets will be selected for each fund launched and managed by Crusader Pensions Ltd in order to achieve each funds stated objectives. Risk Management and control Risk management and control is crucial to Crusader Pensions investment implementation. A number of investment procedures and limits have been designed to reduce the volatility of our investments by minimising the risk without aversely affecting the upside potential. These are closely monitored and enforced by the risk management committee, who receive detailed reports, produced by the back office (domiciled within the Finance & Admin department). Our risk management and control procedures include the following: Proactive asset allocation to reduce exposure to volatile investments, markets and sectors; Monitor portfolio risk exposures Review each asset performance and risk profiles, concentration and liquidity limits: o All of Crusader Pensions investments are subject to rigorously adhered to concentration and liquidity limits:  A maximum of 20% of all pension fund assets can be invested in state government bonds;  No more than 2.0% of Fund Assets can be invested in bond and debt instruments issued by any one State Government;  No holding of eligible bonds and debt instruments issued by any State Government in Nigeria, shall exceed 2.0% of any one issue;  A maximum of 30% of all pension fund assets can be invested in corporate bonds/debt (including REIT‘s, Mortgage and Asset backed securities);  No more than 2.5% of Fund Assets shall be invested in eligible bonds, REITs, Mortgage and  Asset Backed securities and debt instruments of any Corporate Entity;  No holding of eligible bonds, Real Estate Investment Trusts (REITs), Mortgage and Asset Backed securities and debt instruments shall exceed 2.5% of any corporate entity;  A maximum of 25% of all pension fund assets can be invested Money Market Instruments;  No more than 1.0% of Fund Assets can be invested in Certificates of Deposit and Bankers Acceptances of any one bank;  A maximum of 25% of all pension fund assets can be invested in ordinary shares;  No more than 1.0% of Fund Assets can be invested in the ordinary shares of any one corporate entity;  Purchases of no more than 1.0% of the issued ordinary share capital of any one corporate entity;  A maximum of 5% of all pension fund assets can be invested in open and close ended funds;  No more than 0.5% of the value of Fund Assets shall be invested in Close end, Open end and Hybrid investment funds issued by any one Corporate Entity;  Purchases of no more than 0.5% of any issued Close end fund;  No more than 0.5% of the value of Fund Assets can be invested in any Open end and Hybrid investment fund;  Purchases of no more than 5% of the issued ordinary share capital of any one corporate entity.  The Portfolio may not purchase any security with any trading restriction other than market liquidity.  No more that 20% will be invested in any one industry, and at least four investment categories must be present.  All straight debt securities shall be rated BBB or higher. 12
  13. 13. The Different Types of Risk We are likely to experience two basic types of risk: Systematic Risk - risk that influences a large number of assets. E.g. political events. It is virtually impossible to protect against this type of risk. Unsystematic Risk - Sometimes referred to as "specific risk". It's risk that affects a very small number of assets. E.g. news that affects a specific stock such as a sudden strike by employees. Diversification is the only way to protect oneself from unsystematic risk. The above are the fundamental types of risk. There are more specific types of risk, which one can say are particular to stocks and bonds: Credit or Default Risk - This is the risk that a company or individual will be unable to pay the contractual interest or principal on its debt obligations. This risk is specific to bonds included in the portfolio. Government bonds, especially those issued by the Federal government, have the least amount of default risk and least amount of returns while corporate bonds tend to have the highest amount of default risk but also the higher interest rates. Bonds with lower chances of default are considered to be ―investment grade,‖ and bonds with higher chances of default are considered to be junk bonds. Bond rating services, allows investors to determine which bonds are investment grade, and which bonds are ―junk‖. Country Risk – This refers to the risk that a country won't be able to honor its financial commitments. When a country defaults it can harm the performance of all other financial instruments in that country as well as other countries it has relations with. Country risk applies to stocks, bonds, mutual funds, options and futures that are issued within a particular country. This type of risk is most often seen in emerging markets or countries that have a severe deficit. Foreign Exchange Risk – When investing in foreign countries you must consider the fact that currency exchange rates can change the price of the asset as well. Foreign exchange risk applies to all financial instruments that are in a currency other than your domestic currency. Interest Rate Risk - A rise in interest rates during the term of your debt securities hurts the performance of stocks and bonds. Political Risk - This represents the financial risk that a country's government will suddenly change its policies. This is a major reason that second and third world countries lack foreign investment. Market Risk - This is the most familiar of all risks. It's the day to day fluctuations in a stocks price. Also referred to as volatility, market risk applies mainly to stocks and options. As a whole, stocks tend to perform well during a bull market and poorly during a bear market— volatility is not so much a cause but an effect of certain market forces. Volatility is a measure of risk because it refers to the behaviour, or ―temperament,‖ of your investment rather than the reason for this behaviour. Because market movement is the reason why people can make money from stocks, volatility is essential for returns, and the more unstable the investment the more chance it can go dramatically either way. Frequency of Review To remain consistent with the asset allocation guidelines established by this document, each asset class in which the Portfolio invests shall be reviewed frequently but at a minimum on a quarterly basis and/or as new guidelines are issued by PenCom. Investments go through cycles and therefore there will be periods of time in which the investment objectives are not met or when expected performance targets are not met. Recognizing that no manager is perfect all the time and that good years help to make up for bad ones, it is important that managers be given an opportunity to make up for periods of under-performance. Unless there are extenuating circumstances, patience will often prove appropriate when performance has been disappointing. 13
  14. 14. Investment Periods/Investment types Investment periods are categorised as follows: - Short term – up to 5 years Medium term – between 5 and 10 years Long term – over 10 years Investment profiles can be classified as:  Secure Secure investments provide safety to the amount invested and can be expected to offer relatively low growth over the long to medium term. They cannot fall in actual value but can fall in ‗real‘ value due to the effects of inflation. Secure investments can be characterised by some of the following: investments are generally cash or cash equivalent based; a return is normally in the form of interest; the future ‗real value‘ or ‗purchasing power‘ of the money could be greatly affected by inflation; Cautious Cautious investments can be characterised by investments which are typically in government and corporate bonds but may have some small equity exposure. They have the potential to provide income, and/or over the medium to long term, relatively modest growth with some degree of capital fluctuation. Balanced A balanced investment can be characterised by investments which are typically split between equity related investments, balanced with other investments such as corporate and government bonds. Balanced investments have the potential for capital growth and/or income over the medium to long term with some degree of capital fluctuation. Progressive Progressive investments can be characterised by investments which contain a significant portion of equity related investments and have a fixed interest securities portion that is used to provide portfolio diversification. Progressive investments have the potential of relatively more capital growth over the medium to long term. They are subject to fluctuations in capital are also expected to have a relatively significant risk of loss to capital value. Adventurous Adventurous investments can be characterised as investments where all or most funds will be in equity or equity related investments. Adventurous investments have the potential for higher capital growth over the medium to long term and may be subject to considerable fluctuation in capital value. Specialist Specialist investments are characterised by investments which have: o exposure to very high risk investments; o high volatility that risks the entire capital value; o some investments in this category may require a longer term investment outlook before any benefit maybe expected. These investments carry a very high risk of capital loss with a potential for higher return over the long term. They are very volatile and are only suitable for clients who can afford to, and are prepared to risk their entire capital value. 14
  15. 15. The Investment Universe Asset classes, Markets, Sectors & Instruments The main asset types for investing beneficiaries‘ money and the associated risks and rewards are listed below: Asset Classes  Cash & Money Market Instruments Cash investments receive interest on the money invested. Such investments include bank accounts, certificates of deposits (CD) and short-term paper usually assumed to have a life or term of less than 90 days. Cash investments generally give easy access to beneficiaries‘ money, but may have a notice period and the interest rates payable may be fixed or variable.  Fixed Interest Securities Fixed interest securities, also known as bonds are redeemable obligations where the issuer guarantees a certain rate of interest payable during the life of the instrument and to redeem the bond on pre-determined terms and a specific price at the end of its life. They are a means by which companies, governments or local authorities borrow money directly from the public. Fluctuations in interest rates are likely to affect the value of fixed interest securities e.g. if interest rates rise, the value of the investment is likely to fall and vice versa.  Equities Also known as shares, stocks, or securities, represent a unit of ownership of a company which are entitled to the earnings of the company when they are distributed (dividends). Investing in equities generally has the potential for higher capital growth over the longer term. However there might be considerable fluctuations in equity prices.  Property (Real Estate) An investment in property can be either directly or via Mortgage Backed Securities, funds, returns of which are determined by changes in the market value of the properties held in the portfolio and any rental/interest income. Markets  The Markets I. Equity II. Fixed Income III. Money Markets IV. Real Estate V. Cash Sectors  The Sectors (as per the Nigerian Stock Exchange listings) a. Agriculture b. Airline c. Automobile & Tyre d. Banking and Finance e. Breweries f. Building Materials g. Chemical & Paints h. Commercial/Services i. Computer & Office Equipment j. Conglomerates k. Construction l. Engineering Technology m. Food/Beverages & Tobacco n. Footwear o. Healthcare p. Hotel & Tourism q. Industrial/Domestic Products r. Insurance 15
  16. 16. s. Machinery(Marketing) t. Managed Funds u. Maritime v. Oil & Gas w. Packaging x. Petroleum(Marketing) y. Pharmaceuticals z. Printing & Publishing aa. Private Equity bb. Real Estate cc. Telecommunications dd. Textiles (current stock listings are attached to the appendix)  The Instruments a. Equity b. Bonds c. Cash d. Funds e. Real Estate f. Money Market g. Derivatives i. Futures ii. Options iii. Warrants iv. Contract For Differences v. SWAPS vi. MBS vii. ABS viii. Credit Derivatives 16
  17. 17. Investment Procedures All investment proposals are routed through the investment department. The department carries out analysis and proposals are accepted or rejected or recommended. Proposals are then classified and presented to the Management Investment Committee with comments etc i. Department Meetings Daily: informal meetings are held and attended by all investment personnel to review the portfolios. Weekly: market meetings, investment reviews and assessment of new investment ideas researched. Monthly: performance and sectoral review meetings. Quarterly: strategy meetings are aimed at defining any changes we wish to make to our investment bias. These meetings provide a forum for the discussion of market strategy and the continuous assessment of the overall risk of the portfolios. For long term core holdings, where an Investment Manager/investment team has come to the decision that he wishes to take on a new position, he must present his proposal to the rest of the team. Thus, any new investment is subject to group discussion and the manager/analyst originating the proposal must convince his peers of the benefits of the investment being suggested. This approach enables us to pool together our knowledge and expertise with the originating Investment Manager/analyst gaining valuable input from his colleagues who may be aware of something relevant happening in other markets. ii. INVESTMENT RESEARCH & ANALYSIS The Investment Management Process Setting investment objectives Establishing investment policy Selecting a portfolio strategy Selecting the assets Measuring and evaluating performance 17
  18. 18. Our investment research process consists of 70% bottom-up and 30% top down. Top down/bottom up investment analysis Interest Corporate Currency GDP Inflation Rates Profits Top down Bonds Cash Equities Asset Allocation Derivative Investment Decision Overlay Stock Selection Bottom up Company Sector Credit Analysis Analysis Analysis Our bottom up research consists of: Company description and corporate profile Results of operation for most recent period Board of Directors and management team Financial Statement Analysis: o Income statement o Balance sheet, and o Cashflow statement – all annual and quarterly periods Company Valuation: o Price / Earnings Valuation Model o Discounted Cash Flow (DCF) Valuation o Dividend Discount Model Valuation Additional miscellaneous items (PEST, SWOT) Insiders control percentage Other major shareholders Real time earnings and strategy announcements Reading and extracting vital information from the footnotes to financial statements General market/sector/industry information and conditions. 18
  19. 19. iii. Data, Information sources and Tools Economic Analysis o Central Bank of Nigeria (CBN) o Debt Management Office (DMO) o Federal Office of Statistics (FOS) o World Bank o Broker Research Notes o Newspapers & other specialist publications o Others Security Market Analysis o Government Publications o CBN o DMO o Money Market Association o Commercial Publications o Brokers Reports & Research notes o Newspapers & other specialist publications o Others Industry Analysis o Industry Publications o Industry Magazines o Specialist Reports o Interviews o Commercial Publications & Newspapers o Others Individual Stock & Bond Analysis o Company Generated Information  Company Annual reports  Interviews with Top Management & Staff o Brokers research notes o Newspapers o Rating agencies  Standard & Poors  Fitch  Agusto & Co o Company/institution website o Information Providers  SBA Research  Bloomberg  Reuters o Commercial Publications & Newspapers o Investment Magazines o Academic Journals Valuation Principles & Practices o Analysis of Financial Statements  Balance Sheet  Profit & Loss Account  Cash Flow Statement o Ratio Analysis  Computation  Interpretation o Company & Security Valuation  Relative Valuation Measures  Absolute Valuation Measures 19
  20. 20. iv. Asset Allocation Our asset allocation is the process of determining optimal allocations for the broad categories of assets (such as Stocks, Bonds, Cash, etc,) that suits the various investment time horizons and risk tolerances of our savers. While this process can be performed on any portfolio with two or more assets, we will mostly apply it to asset classes. We deem this allocation as probably the most important decision and may account for a significant proportion of the return of a portfolio. Each asset class will generally have different levels of return and risk. They also behave differently. At the time one asset is increasing in value, another may be decreasing or not increasing as much and vice versa. We maintain an active asset allocation strategy by o investing for the long term (in various asset classes, depending on the fund); o making strategic allocations to new investment opportunities o positioning the portfolio to take advantage of current market opportunities and risks. After reviewing the long-term performance of and risk characteristics of various asset classes and balancing the risks and rewards of market behaviour, assets will be selected for each fund launched and managed in order to achieve each funds stated objectives. v. Risk Management and control Risk management and control is crucial to Crusader Pensions investment implementation. Our risk management focuses on the steps necessary to minimise losses by assessing market conditions, asset fundamentals, risk reward and probability. A number of investment procedures and limits have been designed to reduce the volatility of our investments by minimising the risk without aversely affecting the upside potential. These are closely monitored and enforced by the Risk Management Committee, who receives detailed reports, produced by the back office. Our risk management and control procedures include the following: Proactive asset allocation to reduce exposure to volatile stocks, markets and sectors; Monitor portfolio risk exposures Review each assets performance, risk profile, concentration and liquidity limits: o All of Crusader Pensions investments are subject to rigorously adhered to concentration and liquidity limits:  A maximum of 20% of all pension fund assets can be invested in state government bonds;  No more than 2.0% of Fund Assets can be invested in bond and debt instruments issued by any one State Government;  No holding of eligible bonds and debt instruments issued by any State Government in Nigeria, shall exceed 2.0% of any one issue;  A maximum of 30% of all pension fund assets can be invested in corporate bonds/debt (including REIT‘s, Mortgage and Asset backed securities);  No more than 2.5% of Fund Assets shall be invested in eligible bonds, REITs, Mortgage and  Asset Backed securities and debt instruments of any Corporate Entity;  No holding of eligible bonds, Real Estate Investment Trusts (REITs), Mortgage and Asset Backed securities and debt instruments shall exceed 2.5% of any corporate entity;  A maximum of 25% of all pension fund assets can be invested Money Market Instruments;  No more than 1.0% of Fund Assets can be invested in Certificates of Deposit and Bankers Acceptances of any one bank;  A maximum of 25% of all pension fund assets can be invested in ordinary shares;  No more than 1.0% of Fund Assets can be invested in the ordinary shares of any one corporate entity;  Purchases of no more than 1.0% of the issued ordinary share capital of any one corporate entity;  A maximum of 5% of all pension fund assets can be invested in open and close ended funds;  No more than 0.5% of the value of Fund Assets shall be invested in Close end, Open end and Hybrid investment funds issued by any one Corporate Entity;  Purchases of no more than 0.5% of any issued Close end fund;  No more than 0.5% of the value of Fund Assets can be invested in any Open end and Hybrid investment fund; 20
  21. 21.  Purchases of no more than 5% of the issued ordinary share capital of any one corporate entity.  The Portfolio may not purchase any security with any trading restriction other than market liquidity.  No more that 20% will be invested in any one industry, and at least four investment categories must be present.  All straight debt securities shall be rated BBB or higher. vi. Diversification Depending on fund approach, we diversify the portfolio(s) across asset classes, sectors, markets, and styles. vii. Investment Limits Our investment limits are a function of our asset allocation policy & strategy. The limits are reviewed as and when new guidelines are issued and in the absence of and other exigencies, quarterly. Overall limits are set by The Pension Reform Act 2004; Investment Guidelines and limits set by PenCom and are currently as follows: 21
  22. 22. Investment Limits per instrument (as a function of the value of the fund) INSTRUMENT MAXIMUM LIMITS Balanced / Managed Fund 1 Government Securities 100% Securities issued by the Central Bank on behalf of FGN Securities issued by the Debt Management Office on behalf of FGN Securities issued by State Governments 20% 2 Corporate Bonds & Other Debt Securities 30% Bonds of Public Companies Bonds of Public Companies which are convertible for shares Redemable Preference Shares Mortgage Backed Securities Asset Backed Securities Shares in Real Estate Investment Trusts (REITS) 3 Money Market Instruments 25% Treasury Bills Time deposits representing deposits issued by financial institutions Commercial Paper issued by Public or Private companies with a non renewable term of counting from their inscription in the security register. Bankers Acceptances and other securities guaranteed by financial institutions. Certificates of Deposit 5 Ordinary Shares 25% Ordinary Shares Shares in Property Companies 6 Open & Close ended funds 5% Shares/Units in Private Equity Funds Shares/Units in local Mutual Funds 7 Property 0% Direct Investment 8 Unquoted Investments 0% Private Companies 9 Derivatives 0% 10 Foreign Investments 0% 22
  23. 23. Investment Limits in Specific Instruments and in Groups of Instruments or Sectors (as a function of the value of the Fund) Minimum - Maximum Limits Per Type of Fund Balanced / Managed Fund B1 Range & Maximum Investment Limits for Specific Instruments and in Groups of Instruments or Sectors (as a function of the value of the Fund) 1 Equity Large Cap Shares 50% - 80% Mid Cap Shares 10% - 25% Small Cap Shares 0% - 10% Equity with the lowest liquidity factor 0% - 2% Mutual Funds 0% - 5% 2 Debt Federal Government Bonds 50% - 80% State Government Bonds 2% - 10% Corporate Bonds 30% - 50% Treasury Bills 10% - 25% Time Deposits 0% - 5% Commercial Paper 0% - 5% Bankers Acceptances 0% - 5% 3 Debt & Equity Preference Shares 0% - 5% Bonds Convertible into Equity 0% - 5% 4 Cash 0% - 5% Investment Limits per Issuer Sectors/Industry % of Fund % of each Company Financial Sector 20% 1% Banks (including) 20% 1% Time deposits Commercial Paper Bonds Shares Mortgage/Asset Backed Securities All other Sectors 20% 1% Companies Sector 20% 1% Equity 7% 1% Corporate Debt 3% 2.5% Funds 0.5% 0.5% * The above are also subject to liquidity tests 23 Investment Limits in issuers which are related to Crusader Pensions Ltd (as a function of the value of the Fund)
  24. 24. viii. Investment approval limits, practices, restrictions and reports a) Investment approval limits The below shall exercise discretionary approval power on investments within the investment strategy and optimal mix of investments approved by the Investment Strategy and Risk Management Committees. Such approval shall be reported at the next and subsequent meetings to the Management Investment Committee, Investment Strategy Committee, Risk Management Committee and ultimately to the Board of Directors. Investment Limits for specific Groups (as a function of the value of the Fund) MAXIMUM LIMITS PER FUND Management Investment Committee 5% 5% of the value of each Fund, subject to a maximum of N500m Managing Director & CEO 3% 3% of the value of each Fund, subject to a maximum of N300m Head of Investments 2% 2% of the value of each Fund, subject to a maximum of N200m Approval limits are reviewed quarterly, unless any exigencies force earlier review. b) Standard practices Execution: The investment department has delegated authority to invest as follows: Domestic Fixed Income: The investment department shall select, execute, and manage all fixed income investments in conformance with the investment policies, strategies and standards established elsewhere in this document. Domestic Equities: The investment department shall select, execute, and manage all domestic equity investments in conformance with the investment policies, strategies and standards established elsewhere in this document. Other investments: The investment department shall select, execute, and manage all other permitted investments in conformance with the investment policies, strategies and standards established elsewhere in this document. 24
  25. 25. c) Pricing The investment department‘s objective in buying and selling "priced" securities is the lowest price when purchasing and the highest price when selling. To achieve these objectives, the following policies apply: All Central Bank and Debt Management Office (DMO) transactions where not executed directly with the relevant authority must be executed with NSE & SEC registered brokers and authorised dealers with at least N100 million in capital using competitive procedures or directly with one Treasury primary dealer when such execution is reasonably expected to be equal to or better than the competitive execution. All mortgage backed securities and other asset-backed securities transactions must be executed with NSE & SEC registered brokers and authorised dealers with at least N100 million in capital using competitive procedures or directly with one primary dealer when such execution is reasonably expected to be equal to or better than the competitive execution. All corporate debt securities transactions must be executed with NSE & SEC registered brokers and authorised dealers with at least N100 million in capital using competitive procedures or directly with one primary dealer when such execution is reasonably expected to be equal to or better than the competitive execution. All common stock transactions must be executed on the floor of a Stock Exchange registered or recognised by the SEC. The dealer is obligated to obtain prompt execution of orders at the most favourable prices reasonably obtainable. Such deals must be executed with NSE & SEC registered brokers and authorised dealers with at least N100 million in capital using competitive procedures or directly with one primary dealer when such execution is reasonably expected to be equal to or better than the competitive execution. All other investments including, commercial paper, marketable bank paper, and options, futures and forwards (where permitted by PenCom) must be executed at prevailing market rates. Such deals (where applicable) must be executed with NSE, SEC and/or CBN registered brokers, authorised dealers, banks, etc with at least N100 million in capital using competitive procedures or directly with one primary dealer when such execution is reasonably expected to be equal to or better than the competitive execution. Miscellaneous  To prevent the risk of releasing investments or cash without receiving the offsetting cash or investments, all investment transactions must be made on the basis of delivery versus payment (DVP). Without exception, no payments may be made nor investments delivered against "due bills." (A "due bill" is a written promise to deliver an investment, or to make payment for the delivery of an investment, at a future time or date.)  The department is authorized and must vote any or all of the securities held by them for the accounts of the funds managed for beneficiaries. In voting, the department shall act prudently in the interest and for the benefit of the applicable fund's beneficiaries. d) Prohibited Transactions The following transactions are prohibited with respect to the funds under management for which investment department is responsible: o Short sale of securities (the sale and settlement of a security not currently owned by a fund and a formal agreement to borrow the security to facilitate the settlement of the short sale); o Purchases of futures, forwards or options for the purpose of speculating; o Borrowing to leverage the return on investments; o Purchases of "private placement" securities; o Purchases of more than 2.5% of a corporate bond issue; and o Purchases of more than 1.0% of the issued ordinary share capital of any one corporate entity. o No more than 1.0% of assets can be invested in deposits, certificate of deposits, commercial notes, bonds and mortgage backed securities, shares and any other investments of any one bank which is licensed by the Central Bank of Nigeria. 25
  26. 26. Broker List Approved financial instruments can be bought or sold only through the following sources: Approved list Brokers listed below have been approved by the board of Directors. By all means all trades shall be dealt through brokers on the list below. All independently researched and reviewed investments must be passed through approved brokers only. No Name & Address Relationship Dealer Alternative Manager contact 1 2 3 4 5 All Others There are instances where deals are brought to the investment departments‘ attention by a broker or brokers not on the above approved list. Provided the deal passes through the normal investment process and is approved for execution and the broker meets the various conditions as detailed in (c) above, the investment department can execute such transactions through the broker. Such transactions must subsequently be reported to: The Management Investment committee; The Investment Strategy Committee; and Risk Management Committee Requirements from Brokers: As part of the due diligence on brokers, copies of the following documents are required: Last 3 years accounts Certificate of incorporation SEC registration NSE license and registration Owners, directors Reports In addition to reports and information made available to allow prudent and objective investment decisions to be made, the following reports shall be presented at meetings of the various committees: The latest portfolio statement (statement of investment & other assets); Details of purchases and sales since the last meeting Total Funds under management o Opening balance o New funds o Withdrawals o Closing balance Material Portfolio changes Gains/losses on investments Income statements o received (from the various instruments) o due and outstanding (from the various instruments) Performance analysis reports 26
  27. 27. Valuation Policy & Procedure Objectives: To mark-to-market on a daily, weekly, monthly, quarterly and annually the value of portfolios. The valuation of the Assets under Management (AUM) shall be based on the net asset value (NAV) defined as: NAV = Total market value of the AUM less Management Expenses divided by Total Accumulated Contribution. Each fund shall be valued on a daily basis, using the closing prices of the same day. In order to arrive at the NAV, the following procedure shall be followed i. Obtain daily official list of Nigerian Stock Exchange electronically and or manually or from the PFC or credible broker. ii. Update quoted securities with the Nigerian Stock Exchange daily official list to determine market value. iii. Ascertain the cost of Real Estate investment or Net Realisable Value, whichever is lower. iv. Estimate capital appreciation on real estate investment by appointing professional Estate Valuers to value investment properties. v. Aggregate total value of money market instruments vi. Estimate unearned income less expenses vii. Aggregate un-invested cash viii. Compute management fees ix. Estimate any other statutory charges x. Sum (ii) to (vii) less (viii) and (ix) then divide by the total accumulated contribution Investment and Recognition Policy Dividends on equities are recognised when the security is quoted ex-dividend. Interest on deposits and fixed interest securities is accounted for on an accruals basis. Other income is accounted for on a receipts basis. The ordinary element of stocks received in lieu of cash dividends is recognised as income of the fund(s), and where applicable is included in the distribution. All expenses other than those relating to the buying and selling of investments are charged to the income property of the funds. Listed investments of the funds are valued at mid market prices. Suspended securities are valued initially at the suspended price but are subject to constant review. Stamp Duty Reserve Tax (SDRT), VAT, NSE & SEC fees where payable, are charged to the capital of the fund. 27
  28. 28. Psychology & Discipline As we invest our clients‘ funds there are plenty of pitfalls to be wary of. But whatever investment selection strategy we favour, the dangers can be encapsulated in the 'seven deadly stock market sins'. Pride Pride comes before a fall. If we have too much belief in our own stock market ability, then danger lurks. Arrogance and complacency can quickly set in. So lets avoid letting any success going to our heads. Indeed, if we think our gains are too good to be true, they probably are. Over our investing lifetime, we will never stop learning about shares. So lets respect the market for as soon as we think we have this investing lark totally licked, the market will bite us. Envy We'll often hear stories of fortunes made on the stock market. We know, some traders who can produce a 300% return each year, or those punters who bought a share the week before it quadrupled. However, there's no point wasting precious time and effort on petty jealousy. We'll get into all sorts of emotional tangles thinking about what we could have made had we bought this share or that share. To generate consistent returns, we have to focus on our own talents, our own investing strategy and our own shares - not those belonging to other people. Gluttony When it comes to investing, too much of anything typically creates portfolio heartache. Following too many different strategies at the same time is likely to lead to an underperforming mishmash portfolio of investments. In addition, owning too many different shares is also likely to disappoint. If we feel there's safety in diversification, we could severely restrict any chance of our handpicked portfolio ever beating the market. Furthermore, the market offers far too many distractions for the unwary. Lets concentrate our time researching our favourite companies or industries, not trying to become an expert on everything under the investment sun. Oh, and too much dealing will make our brokers rich, not our pensioners. Lust Or in other words, never fall in love with investments. After spending time evaluating an investment, it's all too easy to form an emotional attachment. But get this – it won't love you back. Don't let love blind you from a company's difficulties or an extended valuation. Remember, many entrepreneurs who have spent years carefully crafting their businesses have sold out because they were offered a very good price, or because their business was heading for trouble. So lets be ruthless with our portfolios. By all means love a company and its products. But emotion has no place when buying or selling investments. Anger Lost money on our investments this year? Do we know who's to blame? If we're angry with the market makers, the tipsters, the analysts, the government, the USA or Osama Bin Laden, then we're in trouble. If we lose money investing, the only person to get angry with is ourselves. Our losses are our fault. If we are taking on the responsibility for our investors retirement funds, then don't remain in a state of denial over our own stock picking shortcomings. We knuckle down and get to grips with investing and work harder. Greed While some greed may be needed to maintain an enthusiasm for stock picking and investing, becoming too greedy can lead to somewhat riskier 'investment' pursuits. Legendary US investor Warren Buffett has produced an average annual compound return of just over 20% during the past few decades. If we're aiming to beat that record, we're being unrealistic. More importantly, you're likely to take on untoward risks, too. The more our greed is greater than the stock market's historical performance, the more likely we'll suffer frustration and disappointment. Lets keep things simple. Adopt a straightforward investment strategy and have modest aims to begin with. 28
  29. 29. Sloth Thirty minutes reading the financial papers, tips etc every Sunday afternoon isn't going to turn us into stock picking and investment geniuses. Becoming a successful investor picker requires a lot of time and effort. We need to have a grasp of accounting, we need to know about valuation (and its importance), and we need to monitor the businesses/markets we're investing in. While plenty of tipsters, newspaper pundits and bulletin board posters all proclaim to have the magic investment market touch, there are simply no short cuts to consistently beating the stock market. So let‘s not rely on other people to do all the hard work for us, especially as they won't be there when trouble inevitably strikes. Let‘s do our own research. Remember, it's our clients‘ money at stake. 29
  30. 30. Appendix 1. Departmental Job specifications and role 2. Investment Analysis process 3. Investment Analysis worksheet 4. Investment Department Procedures 5. PenCom Regulations on Investment of Pension Fund Assets 6. PenCom Regulations on Valuation of Pension Fund Assets 30
  31. 31. Job title: Investment Analyst Reporting to: Head of Investments Description: The successful candidate will be an entrepreneurial team player to provide support for fundamental investment analysis and research and market analysis on Nigerian companies, markets and sectors covering various asset classes. Responsibilities: to provide and help develop a database of quantitative and qualitative information; fundamental investment & economic analysis of markets, companies, sectors and funds; Analyse and write regular reports on the macro economy at large and fiscal and monetary implications on the equity, bond markets money and other markets; Work hand in hand with other members of the investment department in top down analysis for the investment management of funds; Develop a database of macro economic information, indicators, bond pricing and yield calculations; Maintain a comprehensive database of key fixed income securities and market indices. Qualifications & O‘Levels Training: HND/BSc Willing to study for the CFA exams Skills & Ability Communication skills, written and spoken Team working Financial reporting & analysis Aptitude to provide creative solutions to financial problems Computer literacy. Ability to work flexible hours Knowledge Professional financial services industry knowledge Experience Financial statement analysis Economic analysis Working knowledge of the equity, bond, money markets Working with computerised financial information systems Team working with other support functions. Microsoft suit – Excel, Word, etc 31
  32. 32. Job title: Senior Investment Analysts Reporting to: Head of Investments Description: The successful candidate will be an entrepreneurial team player to provide fundamental investment analysis and research and market analysis on Nigerian companies, markets and sectors covering various asset classes. Responsibilities: responsibilities will include conducting in-dept research and valuations of Nigerian companies maintaining industry sector information and analysis making buy and sell recommendations participating in market meetings portfolio modelling, construction and analysis executing transactions; and supervising support staff. Qualifications & O‘Levels (including English & Maths) Training: HND/BSc Professional numerate qualification or postgraduate degree Studying or willing to study for the CFA exams Skills & Ability Communication skills, written and spoken Team work & supervisory skills Financial reporting & analysis Aptitude to provide creative solutions to financial problems Computer literacy. Ability to be self-motivating and work without close supervision. Ability to work flexible hours Knowledge Professional financial services industry knowledge Experience Financial statement analysis and company valuation Bond & money market analysis and pricing Economic analysis Other markets as required Working knowledge of the equity, bond, money markets Working with computerised financial information systems. Report writing Working as part of a team Providing financial training for other staff. Working with other support functions. Microsoft suit – Excel, Word, etc 32
  33. 33. Investment Analysis Process Companies Whilst guided by rules laid down by the Pension Commission, Crusader Pensions Limited undertakes a multi- faceted analysis of each potential investee company. In the first stage, the analysis follows a typical performance screen of companies against their peers based on long-term total shareholder return and cash flow return on investment. Additional information is gathered through discussions with brokers and others. Finally, an assessment is made of the general standard of a company‘s governance structures. At the second stage a more in-depth investment analysis is made of each potential investee company‘s component businesses, the markets in which it operates, sector-wide conditions and company-specific considerations. Sometimes this involves our commissioning an external specialist to prepare a strategic review of the company. The purpose of the analysis is to gain a thorough understanding of the company‘s business and operating environment and thus determine its potential value and the factors currently preventing that value being recognised in the market. The third stage of analysis is of the governance structures and frameworks within which the company operates. In particular, we take into account the shareholder base, the structure and composition of the board of directors, the quality of management and legal and regulatory environment. On this basis we take a view on the potential for the company to generate sustainable rates of return and in turn capital gain and dividend yield. An inherent part of the analysis is identifying the changes that are necessary to realise the potential value of the company and determining the role that Crusader Pensions Ltd as an investor might play. The penultimate step in the investment analysis process is to formulate the engagement programme necessary to produce the improved performance of which we believe the company capable. The combined results of each stage of analysis are the basis on which a decision is taken as to whether the potential value and the potential for change are consistent with our investment policy. If so, an investment proposal is submitted to the Investment Committee, which will then decide whether the company should be included in the portfolio. Fixed Income Instruments In selecting our various fixed income instruments, we take into consideration all the characteristics of the instruments, such as the coupon rate, maturity date, credit quality, interest rates, inflation etc. Property Crusader Pensions Ltd will offer a research-based approach to property investment. This is based upon a philosophy of targeting, directly or indirectly for acquisition, high quality properties which are well located and highly competitive in their local marketplaces. CPL will operate across all the primary markets of retail, office, residential and the industrial sectors. The investment process combines the use of top down portfolio and bottom up property asset models, to develop specific investment strategies for us to maximise savers returns. The CPL Property fund will enable clients to participate mutually in a professionally managed vehicle investing in real property, benefiting from a diversified portfolio, without the burden of management. 33
  34. 34. Companies Listed on the Stock Exchange As at 31 December 2005 AGRICULTURE/AGRO-ALLIED ELLAH LAKES PLC. GROMMAC INDS. PLC. LIVESTOCK FEEDS PLC. OKITIPUPA OIL PALM PLC. OKOMU OIL PALM PLC. PRESCO PLC AIRLINES ALBARKA AIR PLC AVIATION DEV. COMPANY PLC. AUTOMOBILE & TYRE BEWAC (NIG.) PLC. DUNLOP NIGERIA PLC. INCAR NIG. PLC. INTRA MOTORS PLC. R T BRISCOE PLC. RIETZCOT NIGERIA CO. PLC. BANKING ACB INTERNATIONAL BANK PLC ACCESS BANK PLC. AFRIBANK NIGERIA PLC. AFRICAN EXPRESS BANK PLC. CHARTERED BANK PLC. COOPERATIVE BANK PLC. CO-OPERATIVE DEVELOP. BANK PLC. DIAMOND BANK PLC EIB INTERNATIONAL BANK PLC. FIDELITY BANK PLC FIRST ATLANTIC BANK PLC FIRST BANK OF NIG. PLC FIRST CITY MONUMENT BANK PLC. FSB INTERNATIONAL BANK PLC. GUARANTY TRUST BANK PLC. GUARDIAN EXPRESS BANK PLC GULF BANK OF NIGERIA PLC. HALLMARK BANK PLC. IMB INTERNATIONAL BANK. PLC INLAND BANK (NIGERIA) PLC. INTERCONTINENTAL BANK PLC. INVESTMENT BANKING AND TRUST COMPANY PLC LIBERTY BANK PLC. LION BANK OF NIG. PLC. MANNYBANK PLC. NAL BANK PLC. OCEANIC BANK INTERNATIONAL (NIG.) PLC OMEGABANK PLC. PLATINUM BANK PLC REGENT BANK PLC. SAVANNAH BANK PLC. SKYE BANK PLC 34
  35. 35. TRADE BANK PLC. TRANS INTERNATIONAL BANK PLC U B A PLC UNION BANK NIG.PLC. UNITY BANK PLC UNIVERSAL TRUST BANK PLC. WEMA BANK PLC. ZENITH BANK PLC BREWERIES CHAMPION BREW. PLC. GOLDEN GUINEA BREW. PLC. GUINNESS NIG PLC INTERNATIONAL BREWERIES PLC. JOS INT. BREWERIES PLC. NIGERIAN BREW. PLC. PREMIER BREWERIES PLC BUILDING MATERIALS ASHAKA CEM PLC BENUE CEMENT COMPANY PLC. CEMENT CO. OF NORTH.NIG. PLC CERAMIC MANUFACTURER NIG PLC NIGERCEM PLC NIGERIAN ROPES PLC NIGERIAN WIRE IND. PLC W A PORTLAND COMP. PLC. CHEMICAL & PAINTS AFRICAN PAINTS (NIGERIA) PLC. BERGER PAINTS PLC CAP PLC DN MEYER PLC. IPWA PLC NIGERIA-GERMAN CHEMICALS PLC. PREMIER PAINTS PLC. COMMERCIAL/SERVICES TRANS-NATIONWIDE EXPRESS PLC. COMPUTER & OFFICE EQUIPMENT ATLAS NIGERIA PLC. HALLMARK PAPER PRODUCTS PLC. NCR (NIGERIA) PLC. THOMAS WYATT NIG. PLC. TRIPPLE GEE AND COMPANY PLC. WIGGINS TEAPE NIGERIA PLC. CONGLOMERATES A.G. LEVENTIS NIGERIA PLC. C F A O NIG PLC CHELLARAMS PLC. JOHN HOLT PLC. P Z INDUSTRIES PLC. S C O A NIG. PLC. 35
  36. 36. U A C N PLC. U T C NIG. PLC. UNILEVER NIGERIA PLC. CONSTRUCTION ARBICO PLC. CAPPA & D"ALBERTO PLC. COSTAIN (W A) PLC. G CAPPA PLC JULIUS BERGER NIG. PLC. ROADS NIG PLC. ENGINEERING TECHNOLOGY INTERLINKED TECHNOLOGIES PLC NIGERIAN WIRE AND CABLE PLC. ONWUKA HI-TEK INDUSTRIES PLC. FOOD/BEVERAGES & TOBACCO 7-UP BOTTLING COMP. PLC. BEVERAGES (WEST AFRICA) PLC. CADBURY NIGERIA PLC. FERDINAND OIL MILLS PLC. FLOUR MILLS NIG. PLC. FOREMOST DAIRIES PLC. N NIG. FLOUR MILLS PLC. NATIONAL SALT CO. NIG. PLC NESTLE NIGERIA PLC. NIG BOTTLING CO. PLC. P S MANDRIDES & CO PLC. TATE INDUSTRIES PLC. UNION DICON SALT PLC. FOOTWEAR FOOTWEAR & ACCESSORIES MAN. & DISTRIBUTION PLC. LENNARDS (NIG) PLC. HEALTHCARE ABOSELDEHYDE LABS. PLC. BCN PLC. CHRISTLIEB PLC EKOCORP PLC. EVANS MEDICAL PLC. GLAXO SMITHKLINE CONSUMER NIG. PLC. MAUREEN LABORATORIES PLC MAY & BAKER NIGERIA PLC. MORISON INDUSTRIES PLC. NEIMETH INTERNATIONAL PHARMACEUTICALS PLC PHARMA-DEKO PLC. HOTEL & TOURISM TOURIST COMPANY OF NIGERIA PLC. INDUSTRIAL/DOMESTIC PRODUCTS ALUMACO PLC ALUMINIUM EXTRUSION IND. PLC. 36
  37. 37. B.O.C. GASES PLC. EPIC DYNAMICS PLC. FIRST ALUMINIUM NIGERIA PLC LIZ-OLOFIN AND COMPANY PLC. NIG ENAMELWARE COMP. PLC. NIGERIAN LAMPS INDUST. PLC. NIYAMCO PLC. OLUWA GLASS COMPANY PLC. VITAFOAM NIG PLC. VONO PRODUCTS PLC. INSURANCE ACEN INSURANCE PLC AIICO INSURANCE PLC. AMICABLE ASSURANCE PLC. BAICO INSURANCE PLC. CONFIDENCE INSURANCE PLC CORNERSTONE INSURANCE COMPANY PLC. CRUSADER INSURANCE PLC. FIRST ASSURANCE PLC. GREAT NIGERIAN INSURANCE PLC GUINEA INSURANCE PLC. LASACO ASSURANCE PLC. LAW UNION AND ROCK INS. PLC. LINKAGE ASSURANCE PLC MUTUAL BENEFITS ASSURANCE PLC. N.E.M INSURANCE CO (NIG) PLC. NIGER INSURANCE CO. PLC. PRESTIGE ASSURANCE CO. PLC. ROYAL EXCHANGE ASSURANCE PLC. SECURITY ASSURANCE PLC. STANDARD ALLIANCE INSURANCE PLC. SUN INSURANCE NIGERIA PLC. UNIC INSURANCE PLC. WAPIC INSURANCE PLC MACHINERY(MARKETING) BHN PLC. NIG SEW. MACH. MAN. CO. PLC. STOKVIS NIG PLC. MANAGED FUNDS C & I LEASING PLC. FIRST CAPITAL INV. TRUST PLC. NIGERIA ENERYGY SECTOR FUND NIGERIA INT. FUND PLC (100$ PAR) MARITIME JAPAUL OIL & MARITIME SERVICES PLC PACKAGING ABPLAST PRODUCTS PLC. AVON CROWNCAPS & CONTAINERS BETA GLASS CO PLC. NAMPAK NIGERIA PLC 37
  38. 38. POLY PRODUCTS (NIG) PLC. STUDIO PRESS (NIG) PLC. VAN LEER CONTAINERS(NIG)PLC W A GLASS IND. PLC. PETROLEUM(MARKETING) AFRICAN PETROLEUM PLC. AFROIL PLC CONOIL PLC ETERNA OIL & GAS PLC. MOBIL OIL NIG PLC. OANDO PLC TEXACO (NIG) PLC. TOTAL NIGERIA PLC. PRINTING & PUBLISHING ACADEMY PRESS PLC. DAILY TIMES PLC. LONGMAN NIGERIA PLC UNIVERSITY PRESS PLC. REAL ESTATE UACN PROPERTY DEVELOPMENT CO. LIMITED TEXTILES ABA TEXTILE MILLS PLC. AFPRINT NIGERIA PLC ASABA TEXTILE MILL PLC. ENPEE INDUSTRIES PLC. NIG TEXTILES MILLS PLC. UNITED NIG. TEXTILES PLC. SECOND-TIER SECURITIES ADSWITCH PLC. AFRIK PHARMACEUTICALS PLC. ANINO INTERNATIONAL PLC. CAPITAL OIL PLC CUTIX PLC. FLEXIBLE PACKAGING PLC. JULI PLC. KRABO NIGERIA PLC. NEWPAK PLC. RAK UNITY PET. COMP. PLC. ROKANA INDUSTRIES PLC. SMART PRODUCTS NIGERIA PLC TROPICAL PET. PRODUCTS PLC. UDEOFSON GARMENT FACT. NIG PLC UNION VENTURES & PET. PLC W.A. ALUM. PRODUCTS PLC. 38
  39. 39. INVESTMENT ANALYSIS WORKSHEET DATE PREPARED: COMPANY DETAILS: NAME: INDUSTRY CLASSIFICATION: ADDRESS: TELEPHONE NO.: FAX No.: WEB ADDRESS: OTHER COMPANY DATA: NATURE OF BUSINESS: PRODUCTS/SERVICES: BRANDS: COUNTRIES OF OPERATION: 39
  40. 40. COMPETITORS BRANDS OTHER DATA/INFORMATION: 40
  41. 41. CURRENT SHARE DATA: CURRENT PRICE: STOCK EXCHANGE: YEAR HIGH: YEAR LOW: EPS: CURRENT P/E: INDUSTRY P/E: DPS (INTERIM) DPS (FINAL) ANNUAL DIVIDEND: CURRENT YIELD %: MARKET CAP: SHARES IN ISSUE: ROCE: FREE FLOAT YEAR END DATE: INTERIMS: LAST TRADING STATEMENT/REPORT: NEXT TRADING STATEMENT/REPORT: FINANCIALS: FINANCIAL SUMMARY: FINALS INTERIMS CURRENT YR -1 YR -2 CURRENT YR -1 YR -2 TURNOVER: PROFIT BEFORE TAX: PROFIT AFTER TAX: TAX RATE: TOTAL DIVIDEND: DPS: DIVIDEND COVER: EPS: P/E: PAYOUT RATIO: WEIGHTED AVG NO. OF SHARES: 41
  42. 42. RATIOS: FINALS INTERIMS CURRENT YR -1 YR -2 CURRENT YR -1 YR -2 PROFITABILITY: GROSS MARGIN: NET MARGIN: COSTS:INCOME RATIO: ROCE: FINANCIAL STRUCTURE: CURRENT RATIO: QUICK RATIO: GROSS GREARING: NET GEARING: LONG TERM DEBT:EQUITY: NET DEBT:EQUITY: INTEREST COVER: BOOK VALUE: 42
  43. 43. PRICE RATIOS: PRICE TO BOOK: PRICE TO SALES: PRICE TO CASHFLOW: ANALYST FORECASTS/RECS: SALES: EARNINGS: DIVIDENDS: P/E RECOMMENDATIONS (AVERAGE) SENTIMENT INDEX: LARGEST SUBSTANTIAL SHAREHOLDERS NAME NO. OF SHARES % 43
  44. 44. INDUSTRY OVERVIEW DESCRIPTION & NATURE OF THE INDUSTRY INDUSTRY PARTICIPANTS PRODUCTS 44
  45. 45. INDUSTRY OUTLOOK OTHER DATA/INFORMATION: 45
  46. 46. MANAGEMENT NAME SUMMARY/CV CHAIRMAN CEO FINANCE DIRECTOR NON-EXECUTIVE (1) NON-EXECUTIVE (2) NON-EXECUTIVE (3) NON-EXECUTIVE (4) CHAIRMAN/CEO‘s OUTLOOK / SUMMARY 46
  47. 47. NEWS/PRESS REPORTS/OTHER INFORMATION SOURCE DETAILS OTHER RELEVANT INFORMATION REASONS TO PURCHASE/SELL SHARES DOES THE STOCK COMPLY WITH REGULATORY GUIDELINES AS CONTAINED IN THE PENSION REFORM ACT 2004 AND PENCOM’S GUIDELINES? YES NO 1 Is the company a public company 2 Has it made taxable profits 3 Has it paid dividends in the 5 preceding years 4 Is the company listed on a registered stock exchange as recognized by the SEC 47
  48. 48. ACTION TAKEN DATE: Voted to hold further consideration. Voted to purchase shares @ /share. Price target Stop Loss: % Price Voted not to purchase this share. Member(s) responsible for following shares: Has a full fundamental Analysis been undertaken covering (top down or bottom up) 1. Company Financial Statement Analysis a. Corporate profile b. Strategic capabilities i. Vision and objectives ii. Competitive position and advantages iii. Management iv. Competitive forces – PEST & SWOT analysis c. Operating performance 2. Industry Analysis a. The industry and its structure b. Market players/participants c. Regulation (if applicable) d. Outlook 3. Macro economic Analysis a. Local economy b. Global economy DATE: 48
  49. 49. TECHNICAL HIGHLIGHTS (where data & information available): MOVING AVERAGE: 1. Is the price trend rising/falling*? YES / NO 2. Has the 20-Bar EMA crossed from below/above* the 200-Bar EMA? YES / NO 3. Are all prices trending higher / lower in the same direction? YES / NO 4. Is the price near it moving average? YES / NO (if yes value trade) 5. Is the price below / above the moving average? YES / NO (Never buy/sell a share below/above its moving average) 6. Is an entry point identifiable? YES / NO RELATIVE STRENGTH INDEX (RSI) MARKET TRENDS OTHERS 49
  50. 50. *Delete as appropriate Summary of other indicators used: Notes: Questionnaire 50
  51. 51. Have you fully analysed this investment Yes No Are you emotional about this investment Yes No Have you set Entry price Yes No Exit price Yes No Stop loss % Price Trailing stop loss % Price % of investment from previous High Low What is the sentiment index +ve -ve How many days has the Investment been up/down in a row Up Down Market been up/down in a row Up Down Sector been up/down in a row Up Down 51
  52. 52. SOURCES OF INFORMATION Company annual report Reuters Bloomberg Digital Look Newspapers/magazines Industry reports Multexinvestor SBA Research Rating Agencies 52
  53. 53. INVESTMENT DEPARTMENT PROCEDURES TYPE OF TRANSACTION: SUBJECT: FREQUENCY: INTERESTED PARTIES: COMPLETED BY: DATE: Objectives . Regulatory Context Operational Context High Level Review Checks Sources of Information Procedure 53
  54. 54. T24 PROCESSES 54
  55. 55. CUSTOMER CREATION In the Menu Bar, click on Registration; go to Agents/Affiliates, it drops down, click on Companies and press F3 to generate a new record. Start filling Field Nos. 1 Mnemonic (Mnemonic means a way of referencing the customer) 2 Short name (type in the name of the customer (funds)) 3 Name 1 (type in the name of the fund) 4 Name 2 (the full name of the fund +the company‘s name) 5 Street 6 Town/country 10 Sector (pick from the drop down list e.g. pensions) 11 Account officer (investment) 13 Industry (pick from the drop down list) 14 Target (pick from the drop list) 15 Nationality (NG) 16 Customer status (investment dept) 17 Residence (Nigeria) 26 Language (English) 31 Company Book (No-input field automatically default Other fields were left blank because the customer in this table (application) is the fund and not a contributor. Note After inputting the necessary fields and data press enter box and F5 to commit the data. Committing a data makes the system to accept it and save it. Leaving the screen blank. If after pressing F5 the data were not committed that means there are errors in the fields or the system is asking you to do one or two things. Always get the record authorise. 55
  56. 56. ACCOUNT CREATION STEPS Go to the Command Bar, type in Account in Caps. lock, press Enter and F3 to refresh a new report for you. Start filling Field Nos 1 Customer (type in the customer‘s Id e.g. Cautious Fund which is 1000) the system will pomptout the name of the fund. 2 Category (account category that has been generated by the finance dept, in this it is current account) 3 Account title 1 (cautious fund A/C for the four different accounts numbers i.e. control, settlement, management fees ,and payable accounts) 4 Account title 2 (the same as above) 5 Short title (short name for the account) 6 Mnemonic (e.g. CFCA for the Cautious Fund Control account) 7 Position type (Trading or drop down the list to choose) 8 Currency (NGN) 9 Currency Market (no input field system default) 11 Account officer (investment dept) 76 Pass book (No) 85 Open Category (Current A/C) 93 Charge Ccy (NGN) 95 Interest Ccy (NGN) 108 Allow Netting (NO) 169 Portfolio No (1000-1)*pending till PENCOM gives go ahead to create more funds Other unfilled fields are not mandatory Finally press enter and F5 to commit the data. And get it authorize. 56
  57. 57. PORTFOLIO SET-UP Command Bar, type SEC.ACC.MASTER, a blank record pop-up, there is a white bar on the top of the blank sheet, type in the customer‘s (fund‘s) ID e.g. 1000-1 (if it is a new portfolio for the fund that means the fund doesn‘t have an existing portfolio. In case of an existing portfolio, type in 1000-2 the 2 (two) means the second portfolio for that particular fund. Where 1000 DYNAMIC FUND 2000 MANAGED FUND 3000 GROWTH FUND field no 1 Customer No. (1000) 2 Reference Ccy NGN 3 Account Name Cpl +Name of the Fund 4 Account Officer Investment 5 Investment Program 5 or Income Model 6 Valuation Ccy NGN 7 Safekeeping Percnt 0 9 Managed Account 1 10 Margin Allowed No 11 Memo Account No 13 Account Nos Settlement, Mgt Fees. Payable e.t.c 14 Account Ccy NGN 20 Div. Acc Mandatory No 23 Valuation Amt No Input Field 27 Start Date Sys.Date 36 Dealer Book 1000 37 Asset Cate Being Defaulted 39 Real Pl Cat Profit 53150 40 Real Pl Cat Loss 53160 41 Unreal Pl Cat Profit 53170 42 Unreal Pl Gat Loss 53180 43 Int. Paid Cat 50600 44 Int Reced Cat 51600 45 Cpn Payable Cat 17210 46 Cpn Reced Cat 17200 47 Cpn Adj Dr Cat 17214 48 Cpn Adj Cr Cat 17212 49 Tax Reclaimed Cat 11299 52 Linear Comp. Accr None 57
  58. 58. 53 Revaluation Y 54 Revaluation Freq Daily 55 Clean Book Cost No 56 Post Disc Upfront No 57 Post Unreal Pl Both 59 Accrue Discount No 61 Portfolio Type Investments 62 Discount to Real Pl No 88 Cap. Paid Cat 52000 89 Cap. Reced Cat 52000 118 Coll. Account Funds A/C Always press F5 to commit the data and get it authorize. 58
  59. 59. PLACING AN ORDER The system generates an order number automatically on the white bar on top of the record. Start filling Field Nos 1 Order Date Gets Default by the System 2 Order Time Defaults by the System 3 Security No The Company‘s no .that CPL Want to Buy the Shares From 4 Value Date Type in the Value Date 6 Order Type Price/Market. 7 Type of Trade Sec.Trade 8 Transaction Code Buy/Sell 9 Trade Ccy NGN 10 Customer No Funds-1000. 11. Portfolio 1000-1. 12 No. Nominal Num. Of units of shares to be purchased 21 Cash Acct No 19224 40 Depository First Custodian 54 Broker Name 55 Date to Broker yyyymmdd 56 Time to Broker System Defaults 57 Units to Broker 84 Market Type S 85 Deal Status Transmitted 86 Deal Narrative Notes 94 Stock Exchange NSE Enter and press F5 to commit the data. And get it authorize. 59

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