All our discretionary portfolios have consistently outperformed their respective benchmarks – Head, Coronation Asset Management
The Head of Research at Coronation Asset Management Limited, Guy Czartoryski, in this interview says the fund has grown its Assets under Management (AUM) to N57bn in 4 years which can be attributed to the value it delivers to clients. He also sees a recession developing in the economy at the moment. Excepts.
The coronavirus pandemic disrupted business activities across the country as government imposed lockdown measures. How did your firm cope during the period of confinement?
Interestingly, we had envisaged four (4) possible scenarios for the Nigerian economy during our strategic planning session last year. One of the scenarios was titled “Macro-Economic Shock (Exceptional Case)”. We documented the possible impacts of the scenarios on our business. We also documented our strategic response to the scenarios. This built in agility and resilience into our business and operating model.
Thus, when Covid-19 disruption occurred, we swiftly activated our Business Continuity Plan to ensure our services remained available and uninterrupted during the lockdown period. We ensured that our clients enjoyed the same level of customer experience prior to the lockdown period, notwithstanding the elimination of physical interactions.
Kindly share with us some of the achievements of Coronation Asset Management Limited since it was established in 2015
We have won a couple of awards and recognition over the four (4) years of our business operations: We obtained our Asset Management licence from the Securities and Exchange Commission (SEC) in November 2016.
Recently, we won the fastest growing fund management company in Nigeria award from Global Banking and Finance Review, 2020. We have grown our Assets under Management (AUM) to N57bn in 4 years which can be attributed to the value we deliver to our clients. As a result, our existing clients have increased the volumes of their investments with us. Also, our clients’ recommendations and referrals have been helpful in complementing our sales and marketing efforts.
Another major achievement in the last 4 years is the development of our investment and portfolio management function. This is reflected in the performance of our funds and portfolios. We were recognized as the Best Fund Manager in Nigeria at International Finance Awards in 2018. Also, our Fixed Income Fund and Balanced Fund were ranked as 2nd highest yield/return in 2019.Moreover, despite the challenging macroeconomic and low interest rate environment in 2020, our funds and portfolios have performed relatively well. All our discretionary portfolios have consistently outperformed their respective benchmarks with some of the portfolios exceeding the benchmarks by over 11%. These results can be attributed to the implementation of International Best Practices in our investment management processes as well as the skills and experience of our portfolio managers who are supported by Cardano Netherlands (Cardano are risk and investment specialists and market leader in the provision of risk and investment services to private-sector and collective pension schemes in the United Kingdom and the Netherlands).
In addition, we’ve been able to develop a Best-In-Class Research function. We combine our market-leading research and investment management expertise to create personalised multi-asset portfolios and fund solutions for our clients. Our Research team is led by Guy Czartoryski who has over 25 years’ research experience in emerging markets, fixed income and equities with HSBC, UBS, Deutsche, etc. Our research publications have been commended by our clients, market analysts and the public. For example, one of our reports in 2019, titled “Power to the Price Point” had 20,000+ YouTube and 20,000+ Twitter views. Also, our recently published report on Nigerian Investments, titled “Navigating the Capital Market: The Investors’ Dilemma” has been much-admired by our clients and Analysts.
Lastly, we have a dedicated team of expert wealth and institutional sales managers, with deep understanding of the local and global markets, supported by client care representatives and agile technology team to provide innovative solutions tailored to meet clients’ needs and aspirations.
Do you agree with the international Monetary Fund and The World Bank that the COVID-19 crisis will tip Nigeria into a recession this?
The International Monetary Fund and the World Bank have made quite accurate forecasts of the Nigerian economy in the past, in particular they both predicted growth at around 2.00% per annum after the recession of 2016, and they were proven right. This time they are working with a larger number of unpredictable factors, such as the depth and the duration of the slump in oil prices and the recovery of global trade and capital flows.
We think that they are essentially right to forecast a recession, for two reasons. The first is the dislocation to Nigerian economic activity caused during the first half of the year by the disruption to international trade routes and by the lockdown in Nigeria itself; the second is the slump in oil prices and the knock-on effect on foreign currency flows into Nigeria. Shortages of foreign currency flows cause multiple problems across different sectors.
Do you see a U-shape economic recovery in 2020?
We see a recession developing in the economy at the moment, and it is likely to be quite a deep recession. The last recession, four years ago, actually lasted for five successive quarters. So, if the Nigerian economy commences negative development in the second quarter of 2020, then it may not be over until early in 2021. The most likely shape to emerge is indeed a U-shape. That said, the authorities are doing everything in their power to soften the impact of recession, and the effects of these policies are likely to ameliorate the downturn.
Which sectors of the economy will be hardest hit from the COVID-19 crisis? – Guy
The COVID-19 crisis has some immediate effects, such as the disruption to international supply routes and the lock-down in Nigeria. However, the fall in oil prices is associated with the COVID-19 pandemic, because of the fall in global demand, and this is having further significant effects on the Nigerian economy. As well as the oil & gas sector, the trade sector is suffering from both trade disruptions and from lack of foreign exchange flows. And the manufacturing sector is producing as well below capacity for the similar reasons including shortages of certain raw materials.
Those three sectors account for 35% of the Nigerian economy and they will be hardest hit, in our view.
The rift between the Saudi Arabia and Russia contributed to the precipitous drop in crude oil price. Will risk premium be elated due to this systemic risk?
The rift between Saudi Arabia and Russia showed that, when two of the largest oil producers begin to compete with each other, the results are spectacularly bad. However, their differences were essentially resolved in April, and since then there have been global production cuts. So, it is important to see the similarities between Russia and Saudi Arabia. Both want to regain market share lost to US shale producers and we believe that they are searching for a price at which Russian and Saudi Arabian output makes a meaningful contribution to their respective budgets but at least some US shale output is uneconomic.
Where is that level? Russia and Saudi Arabia will only find out by testing the market. Some recent data from the US suggests that two million barrels per day of shale production has been lost, which implies a pick-up in Russian and Saudi Arabian market share. If you reference the Brent crude price then the critical price level might be somewhere between US$45.00 and US$55.00 per barrel. From Nigeria’s point of view, we would like the price to settle towards the upper end of that range because Nigeria’s public finances work well when oil is over US$50.00 per barrel. So, until prices reach these levels, it makes sense to talk of a risk premium.
Will a unification of various exchange rates spur transparency and help bolster Foreign Direct Investment (FDI)?
It is a remarkable thing that we have seen a high degree of exchange rate unification in under a year. The difference between the official purchase rate and the rate prevailing in the Nigerian Autonomous Foreign Exchange (NAFEX) market has almost disappeared. This is clearly appealing to our international counterparties such as the International Monetary Fund (IMF) and the World Bank (WB).
At the same time, unification is not the same thing as convergence. So, we have seen the parallel market exchange rate move away from the NAFEX rate. This is a source of concern as it shows that a certain amount demand for US dollars is not satisfied in the NAFEX market. In other words, unification of the rates is good, but additional liquidity in the NAFEX market is required in order to prevent demand for US dollars reaching the parallel market. It is when we have both unification and strong foreign exchange liquidity that we are likely to see foreign direct investment returnin significant volume.
Do you see more downward pressure on Treasury Bill (T-bill) and government bond rates as domestic funds rotate from high-yielding CBN OMO bills into government securities?
The message we have been sending to our clients on rates, for months now, is ‘lower for longer’, precisely because of the redemption of OMO bills which is causing funds to flow into the Nigerian Treasury Bill market and into the bond market. As there are some significant OMO redemptions coming up, we would expect this trend to be sustained. Rates have come down a long way already and we see the pressure being sustained for a few more months.
With yields on short term government securities crashing on the back of the new policy by the central bank, will Pension Fund Administrators (PFAs) increase their exposure to domestic ordinary shares?
This is precisely the issue addressed in our recent publication ‘Navigating the Capital Market, the Investors’ Dilemma’. This report is a ten-year review of Nigerian investment returns and it shows that, for a long time, Pension Fund Administrators were able to get a positive inflation-adjusted returns in the Treasury Bill and bond markets. So, they did not have to study risk-adjusted returns very much during this period. Now they do, and in our report we set out the benchmarks that they need to use.
It is clear that not just Pension Fund Administrators, but all institutional fund managers, and individual investors, need to reacquaint themselves with risk management. There are many instruments they can use to enhance their yield and returns, among them credit solutions and equities. But guiding the optimum path through the equity markets is a difficult task, requiring experience and a very disciplined approach. We plan more publications on these topics over the coming weeks and months.
The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has kept interest rates unchanged. Will the apex bank continue with the hold policy throughout 2020?
The Monetary Policy Committee historically has balanced three different factors: growth in the economy; targeting inflation; and targeting the exchange rate. Understandably, and given the impact of COVI-19 on the economy, the Monetary Policy Committee is principally concerned with growth during 2020. We do not see any reversal in this policy at least until the end of the fourth quarter of this year. At this point it is possible that it will return to its other two objectives, namely inflation and the exchange rate. But the development of policy partly depends on extraneous factors, notably global growth and commodity prices. So everyone will continue to monitor these factors closely.