- SEC Opens Door to Levy Relief for Distressed Investment Portfolios as Fund Managers Push Back
Ghana’s Securities and Exchange Commission has opened the door to regulatory levy relief for genuinely distressed investment portfolios, introducing a significant concession into a fee regime that has generated resistance among fund managers concerned about paying charges on assets that are impaired or no longer producing returns.
Mensah Thompson, Deputy Director-General of the SEC, said the regulator would consider such cases individually and would not insist on levies where managers could demonstrate that underlying investments were genuinely distressed or non-performing.
“We definitely cannot ask you to pay levies on non-performing funds, funds that are distressed,” Mr Thompson said during a special NorvanReports–Economic Governance Platform X Space.
“If you have a genuine issue, just come to us. We definitely cannot ask you to pay levies on non-performing funds.”
The position addresses one of the most difficult criticisms facing the SEC’s new levy structure: an assets-under-management charge can remain payable even when the underlying investment has performed badly.
Unlike a profit-based fee, an AUM levy is calculated on the size of assets being managed. A portfolio may therefore suffer weak returns, valuation losses or impaired investments while both management and regulatory charges remain due.
That distinction becomes particularly sensitive in Ghana because parts of the investment-management industry continue to carry legacy exposures to failed financial institutions, companies in receivership and other assets whose book values may bear little relationship to what managers can actually recover.
Charging a regulatory levy against such assets could effectively impose another cost on investors already carrying losses.
The SEC’s answer is not a general exemption, but verification. Fund managers already submit placement reports showing where client funds are invested, and Mr Thompson said those disclosures give the regulator a basis for determining whether an asset described as distressed is genuinely impaired.
“These are things you can’t cook up. They are verifiable, based on your placement report,” he said.
“We know where you have told us you placed the funds, and based on that, we know whether that particular placement is distressed or is performing.”
Mr Thompson said managers had already approached the SEC over exposures to institutions that had collapsed or entered receivership, with concessions granted where the circumstances could be substantiated.
That offers immediate relief to managers holding impaired portfolios, but it also places considerable weight on regulatory discretion.
A case-by-case system will require the SEC to define distress consistently, establish how impaired assets are valued and ensure that similar portfolios receive similar treatment. Without that clarity, a mechanism intended to improve fairness could itself create uncertainty over who qualifies for relief and on what basis.
Mr Thompson rejected the argument that an asset-based charge is inherently unfair because investment returns fluctuate. He noted that fund managers themselves routinely charge management fees against assets under management rather than only when portfolios generate profits.
“A fund manager has been charging 2.5 per cent management fee every year on the fund for a couple of years,” he said, questioning why a much smaller regulatory levy should automatically cause investors to withdraw funds from the market.
His argument places the burden back on the commercial relationship between asset managers and their clients. Where a client objects to the additional cost, Mr Thompson said managers may need to negotiate how it is shared rather than expect the SEC to abandon the charge.
“Go and negotiate,” he told fund managers.
He cited the example of an asset manager charging a 0.5 per cent management fee potentially reducing its own margin and asking the client to absorb part of the regulatory levy.
The commercial logic is straightforward. A manager may prefer to sacrifice a fraction of its fee rather than risk losing a large institutional mandate entirely.
But that adjustment will not affect every firm equally. Large managers with broader portfolios and stronger margins may have more capacity to absorb part of the levy. Smaller firms operating on thinner margins could find the same concession considerably more difficult.
If that pressure persists, the levy could have consequences beyond immediate pricing. It could encourage consolidation in a fund-management industry where scale increasingly matters because firms must invest simultaneously in compliance, technology, distribution and risk management.
The SEC has also pushed back against claims that the new structure amounts to multiple charging because the regulator already receives a share of transaction-related fees generated through securities trading.
Mr Thompson said the two charges relate to different regulatory functions.
“The corresponding levy that we get from the Ghana Stock Exchange is a fee on transactions,” he said, distinguishing transaction-based charges from the supervision of assets held under management.
That distinction goes to the heart of the SEC’s defence of the levy. The regulator’s argument is effectively that transaction supervision and ongoing oversight of investment portfolios are separate activities and therefore need not be financed through the same fee base.
Fund managers, however, are likely to continue focusing on the cumulative cost imposed on clients rather than the regulatory rationale behind each individual charge.
The industry’s concern is therefore less about whether the SEC incurs supervisory costs and more about how many layers of fees investors ultimately bear before receiving a net return.
That becomes particularly important in a market trying to deepen retail and institutional participation. If investment products become materially more expensive, the levy could work against the SEC’s wider objective of encouraging more Ghanaians to place savings into regulated capital-market products.
The Commission appears conscious of that risk. Mr Thompson said the levy regime would be reviewed after the SEC had observed how it operates in practice, with possible adjustments including caps on the amount of assets subject to the charge.
That review could prove important because the economic impact of an AUM levy does not depend only on its headline rate. It also depends on whether managers pass the full cost to clients, absorb some of it themselves, change product pricing or restructure portfolios in response.
The distressed-asset concession therefore provides the first indication that the SEC is willing to distinguish between the theoretical size of a portfolio and its genuine economic value.
An investment that exists on a balance sheet but cannot generate income, be sold or be recovered should not necessarily be treated in exactly the same way as a liquid and performing asset.
The harder question is where the line is drawn. For fund managers, the immediate message is that distressed portfolios can qualify for relief where impairment can be verified.
SEC, however, the underlying philosophy remains unchanged: viable assets operating within Ghana’s regulated investment industry should contribute towards the cost of the institution supervising them.
The success of the regime will therefore depend on whether the regulator can hold those two positions together collecting enough revenue to strengthen supervision without imposing costs that weaken investor returns, distort competition or penalise managers for assets that have already failed.
