Nigerian mutual fund industry defied odds to post an asset under management (AUM) of almost N100 billion in the struggling 2019 economic year.
The country’s N85.42 billion AUM as at December 2011 surged by N884.93 billion to post N970.35 billion as at December 2019, according to data compiled from the Securities and Exchange Commission (SEC).
Rising from N644.56 billion at the beginning of 2019, Nigerian fund managers’ total asset under management added N325.79 billion as at year-end, representing a 50.54 percent growth.
The strong growth in Nigeria’s AUM is driven by robust growth in low-risk investment funds – money market, fixed income and bond funds. This reflects the conservative investment strategy of investors packing cash to mutual funds as they reckon Nigeria is somehow a risky market.
“Such a huge percentage of mutual funds in money market instruments speaks to the anomaly of high rates that we have witnessed in prior three years. This has discouraged directing flow of funds to risky investments, “Ayorinde Akinloye, an analyst at Lagos-based CSL Stockbrokers, said.
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The primary advantage is that they provide economies of scale, a higher level of diversification, and liquidity. But investors are required to pay various fees and expenses to manage the fund.
A breakdown of the 2019 data by SEC shows that the money market funds segment, which makes up 73.33 percent of the mutual fund industry in Nigeria, grew by 45.95 percent in the year under review as investors poured up to N224.01 billion into money market funds which have enjoyed double-digit returns for years.
“We believe that in the long term, money market funds may represent the silver lining in mobilising savings and creating a huge pool of investible funds while also creating a new culture of savings and investments,” said Agusto & Co.
According to the Lagos-based credit rating agency, the less risky investment instruments like money market funds will continue to appeal to a broad spectrum of customers ranging from institutional investors to the mass affluent.
Fixed income funds and bond funds were the other asset classes that led the pack as their portfolio value appreciated to N132.80 billion and N40.17 billion, respectively, in 2019. These short-term funds now account for 13.69 percent of Nigeria’s total AUM, as against the 11.17 percent they opened the year with.
“Fund managers are aggressively marketing their debt and money market funds since equities are not doing well. This explains why less risky assets are appreciating faster,” said a Lagos-based analyst who preferred anonymity.
The significant appreciation in Nigeria’s mutual fund AUM can also be attributed to the Central Bank’s recent policy aimed to increase investment to the real sector of the economy.
In its effort to boost credit flow to the real economy, the CBN prevented local corporates and individuals from participating in both primary and secondary activities of Open Market Operations (OMO) with effect from October 23, 2019.
The move by the industry regulator was largely in line with its drive to divert liquidity away from risk-free instruments to the real sector, according to analysts.
Beginning from the date the CBN implemented the new policy, mutual fund AUM recorded an asset surge by 11.44 percent from N870.75 billion on October 25, 2019 to 970.35 billion in December 2019. The net asset reported by the Nigerian mutual fund after the CBN policy was implemented was N146.291 billion or 17.75 percent higher than the N824.059 billion posted at the end of September when the policy was yet to be initiated.
“We may see a change going forward as these funds would start reporting low yield scorecards in another six to 12 months,” Akinloye said.
ENDURANCE OKAFOR
