In April 2025, the Nigerian Securities and Exchange Commission ("SEC") introduced material amendments to its private equity regulations. For private equity fund managers, general partners (GPs), and institutional limited partners (LPs), these changes are essential for structuring private equity funds, raising private equity funds locally, and ensuring compliance with SEC regulations.
Key Changes Under the Updated SEC Private Equity Rules
1. Exemption for Small Private Equity Funds in Nigeria
Up from a threshold of ₦1 billion, private equity funds in Nigeria with a target size of ₦5 billion or less are now exempt from full SEC registration, though they must still file governing documents and obtain a no-objection from the SEC.
2. GP-LP Alignment: Mandatory General Partner Commitments
Private equity funds in Nigeria must now commit at least 3% of the fund's size if targeting pension funds as LPs. The requirement is reduced to 1% where a sovereign wealth fund or DFI is an LP.
3. "Good Faith" Asset Valuations
The previous statutory requirement for valuation to be based on a fair market value has been jettisoned. Under the new private equity rules, valuation must now be done on a "good faith" basis, and based on any methodology approved by a private equity fund's Advisory Board.
4. New Investment Concentration Limit: 70% of Assets
Private equity funds in Nigeria may now invest up to 70% of a fund's assets in a single portfolio company, a significant increase from the previous 30% limit.
5. Fee Structure Cap: 2 and 20 Rules Now Codified
Under the new private equity rules, private equity funds raising capital from Nigerian investors must not exceed 2% management fee and 20% performance fee/carried interest.
Commentary
The statutory "Good Faith" requirement is particularly worthy of note as it introduces a high legal standard for private equity funds in Nigeria. The "Good Faith" rule effectively affirms a GP's fiduciary duty to act with loyalty, honesty, and diligence in decisions that affect the financial interests of LPs. By implication (and at the very minimum), a good faith valuation must be made with honest intent, not for self-enrichment or to manipulate performance fees. Failure to conduct a good faith valuation can expose the GP to regulatory penalties, breach of fiduciary duty claims, fund clawback, or LP litigation.
How We Can Help
We work closely with private equity fund sponsors, institutional investors, and transaction counsel to navigate Nigeria's evolving fund regulations. Our services include:
- Fund Structuring & Regulatory Strategy: Advising on how to comply with SEC's exemptions and registration thresholds, including documentation of fund formation, GP commitments, and LP terms.
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Read Also:Client Update: The Constitutional Limitations of the Limited Partnership Laws in Lagos State
- Valuation Policy Development: Drafting valuation procedures that meet the new "good faith" standard and can withstand regulatory and LP scrutiny.
- LP Negotiation Support: Assisting with drafting or reviewing side letters, LPA provisions, and fund terms to ensure alignment with pension fund or DFI participation.
- Regulatory Filings & Compliance: Preparing all required disclosures for exempt and registered funds under the new rules.
- Policy Advisory: Offering strategic insights on fee caps, concentration limits, and structuring co-investment vehicles.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
