As the financial markets respond to the unprecedented public health crisis that has brought the global economy to its knees, wealth and fund managers across the globe are leveraging digital technologies to make resilient investment decisions for clients seeking a good return for their money, and Nigeria is not left out.
Africa’s biggest economy has been hard hit by the COVID-19-induced market volatility, and the economic impact of weakening oil prices spurred portfolio reallocation from risky assets to low-risk securities.
For investors of Nigerian assets, the situation has become dicier as they must choose from a limited basket of products amid rising inflation, which has sent real yields on most asset classes to negative.
This unfortunate situation has propelled investors to rethink whether to hold cash or invest. And even when they chose to invest, few have limited knowledge on the appropriate portfolio mix that would fetch them maximum returns.
Against this backdrop, Business Day, West Africa’s most-read business paper, organized a webinar on private banking and wealth management solutions with the theme “Preserving Value Through the Deep and Turmoil”.
The event featured renowned fund managers and wealth management experts who spoke to investors on the combination of asset classes to build their investment portfolio that would make them better-off this period.
For better audience engagement, the conference was divided into three panel sessions with the experts giving insights that gave investors value for their time.
Bimpe Nkontchou, managing principal at W8 Advisory LLP, who spoke from London, said as opposed to private banking which has gained much traction in Nigeria, the wealth management space is still in its infant stage in Nigeria.
According to her, wealth management as it is being practised by global banks in London goes beyond walking up to clients and talking to them about their financial needs, products or investment but also, having a view of clients lifestyle holistically right from the financial assets that they own to tax planning down to their non-financial assets as well as how these assets are structured.
She explained that most clients she engages with tend to use wealth management interchangeably with private banking which is not supposed to be.
“Wealth management implies looking at your global portfolio in line with global requirements. It means looking at your non-financial requirements, real estate and even looking at how your family is developing because that is part of your investments. And also looking at structures that you can set up to hold those assets efficiently from a tax and estate planning point of view,” Nkontchou said while noting that the concept is, however, evolving in Nigeria and hopefully, with the COVID-19 pandemic, wealth managers are going to start stepping up to have a clear discourse on what it means to take up the role.
Despite the grim short and medium-term outlook of the Nigerian economy as anticipated by the International Monetary Fund and the World Bank, expecting a contraction of 5.4 per cent and 3.2 per cent by year-end, Akintoye Akindele, Chairman, Platform capital, stated that his firm is optimistic about the economy and further maintained that pandemic provided opportunities for his firm.
Akindele while taking clues from his wealth of experience noted that wealth managers should be country-specific when dealing with clients as opposed to dealing with them from a global standard.
His argument stems from the fact that wealth, as described in developing countries like Nigeria, is different compared to what is obtained in other countries given Nigeria’s history and given its huge informal sector and economic breakdown.
“Globally, the wealthy have most of their portfolio in real estate which is about 27 per cent, 23 per cent in equities, 17 per cent in fixed income, 11 per cent in cash and foreign currencies, eight per cent in private equities but in Nigeria, the biggest companies are private companies and are not listed. Similarly, the majority of assets in real estate here in Nigeria are undocumented and lack proper titles. We have land use-related issues, “Akindele said.
“In Nigeria, we have lots of wealth trapped in private equity that is not being unlocked. We have a lot of wealth locked in real estates. We have lots of wealth trapped as cash under peoples pillow and tables hence, If one wealth management allows us to manage assets that are well defined in Europe and America with structures well in a place like taxes defined, in Nigeria it becomes a struggle to see how a wealth manager will fare when you do a cut and paste approach from what is done abroad to Nigeria,” he added.
Akindele whose company services clients in 71 countries said his company’s view on wealth management is very different from what others think and that is why it has been able to grow significantly in the last one year because it customized wealth investment for African families or investors to consider what their wealth is by defining what define the asset classes of their net worths as they find ways to help them manage it.
“Why people were moving their funds to the dollar to hedge against devaluation risk, we saw it and understood there are growth markets in Nigeria that needs naira so we have gone long on Naira in certain positions such that those who have naira but do not have dollar exposure are able to put their naira into opportunity in Africa and they have grown significantly. Basically, what we did was that those who have naira assets and naira needs, we have been able to match those naira needs with naira opportunities while for those who have naira assets with dollar needs, we have been able to help them match that as well. Our portfolio has grown over 200 per cent during the COVID-19 outbreak,” he said.
“There is a huge gap in understanding wealth management in Africa and we are focused on that. I think it is growing, there is an opportunity here and there is a great task for finance and investment managers to take advantage of the growing markets,” Akindele said.
Martins Emodi, Co-founder/Partner at Wealth Partners AG Switzerland, who spoke on some of the challenges client’s face in finding assets to invest in locally vis a vis other opportunities opened to them in other jurisdictions, explained that diversification is one of the issues faced by clients as 99 out of the 100 people complain there tends to be over-concentration in sectors, over-concentration of asset classes, and over-concentration in currency however these problems are not peculiar to Nigeria.
He noted that Nigeria is a unique country and investors should be super exposed to Nigeria by diversifying their products.
“A lot of Nigerians are riding a very tight line on liquidity. Most of the people I meet are assets rich but are cash poor. This is a brave approach to investing however, it could be risky and the pandemic has taught us that so part of what we are doing is to help our clients to cash plan,” Emodi said.
As a petrodollar economy, Nigeria’s asset classes are sensitive to the direction of oil prices, hence, tends to do well during periods of higher oil prices and vice versa.
The decision on which asset classes to invest in has become a tough one for investors, with the coronavirus pandemic which has caused a 60 per cent decline in crude oil prices, Nigeria’s biggest foreign exchange earner.
For instance, the all-share index of the Nigerian equities market has lost about 10 per cent of its value since the year’s start.
Yields on treasury bills have also taken a bite, dipping by more than 860 basis points to some three per cent, after the apex bank banned non-bank domestic investors from participating in its short-term OMO securities, and this fuelled excess liquidity into the fixed income space.
With inflation yet at a record high of 12.56 per cent last month coupled with uncertainties in the investment environment, the experts called on the need for portfolio diversification and rebalancing of assets to match current realities.
For them, the age of the investor, financial goals, time horizon and risk tolerance are some of the major factors one must look out for when building a portfolio.Fund managers see tipped alternative investment and fixed income investment as viable options during this period. That would at least guarantee some positive real return while contributing to the growth of the economy which has been staggering behind population growth in the last four years, they said in a webinar session put forward by Business Day.
They explained that such alternative investments that can spur growth while still giving investors a good reward for their money include investment in real estates, agribusiness, education, infrastructure bonds tied to specific projects amongst others.
“In Nigeria, there’s no specific fixed investment instrument that can surpass the inflation rate, you need to look into alternative asset classes,” said Samuel Enuechusue, head of investment management, Investment One said.
“At a time like this, construction of one’s portfolios in line with well-defined specific needs cut across various asset classes and sectors could be a better decision for any investor,” said Enuechusue.
He explained that in knowing which asset class should be given more consideration, fund managers and investors must look beyond just seeing the negative trends or loss rather, they should ascertain the drive behind such negative trends, whether they are short term drivers or long term in nature.
Titi Adeoye, founder/CEO Sankore Investments said the unlocking investment for Nigeria is in the alternative market.
She explained that by investing in alternative asset classes such as in real estates and agriculture, investors could make positive real returns while still making huge economic impacts with their investments.
According to her, the reason why people do not make money in real estates is that they prefer investing in highbrow areas rather than targeting the country’s low and middle-income classes.
Adeoye tasked investors to take advantage of the country’s huge housing deficit estimated around 20 million, to provide products for those in need of them.
“In Ikoyi, the vacancy rate is around 22 per cent as opposed to the 2 per cent vacancy rate seen in places like Yaba. Why then should an investor go to Ikoyi when it can invest in areas where housing is of higher demand,” Adeoye asked.
She however proffered building of share offices, students housing as some of the best forms of real estate investment.
On how investors can maximize their returns considering current realities, Adeoye said one objective of having a diversified portfolio is that it allows investors to avoid drawdowns as much as possible
She noted that the only thing that is certain about markets is that there would be ups and downs.
“This is the best time for an investor to take a proper look at its portfolio, get educated as to how to diversify or rebalance them, and draft a long term investment strategy,” she said.
Meanwhile, Lanre Fabunmi, MD Aiico Capital, said given current economic realities, the fixed income space is still a sure bet for investors as the market comes with numerous benefits including the fact that it is risk-free, there are tax advantages and more liquidity.
Fabunmi while stating categorically that there is really no point for any investor to diversify assets away from fixed income space, said the Nigerian environment is a totally different one from those seen in other countries.
According to him, data in the last five and 10 years has put Treasury bills to be the best-performing assets in Nigeria, rewarding as much as 111 per cent and 328 per cent respectively compared to the 12 per cent and 23 per cent loss seen inequities.
Similarly, the commodities market has seen a 43 per cent and 23 per cent loss in a 5 and 10-year period respectively, while an average of 85 per cent has been seen in 5 and 10-year bonds.
In dealing with clients especially in this period, fund managers, as well as wealth managers, have to uphold three Ts which are transparency, truth and trust, as the three elements are necessary to underpin the relationship between advisers and clients and how they deliver, according to Esiri Agbeyi, partner at a global consulting firm, PWC.
Agbeyi who moderated the last panel session where she engaged panellist on how their clients can navigate the ripple effect of the pandemic on their portfolios, and on the other hand, how are firms are stepping up their relationship management and tools to meet the interest of their clients in the economic slowdown explained that managers must embrace the pandemic that has befallen the globe, however, they must also strive to tell clients the truth.
Responding, Tunde Oyewole, country MD, DLA Piper Nigeria, described the current pandemic as being the most destructive occurrence seen ever.
Oyewole who spoke from the perspective of his clients said, many of them have been affected by the crisis as they are suffering cost amid revenue shortfall, which has made businesses particularly leverage businesses struggle to meet loan requirements and pay their bills.
“Aside from the fact that we have seen companies finding ways to cut cost, we have also seen them sitting with bankers renegotiating contracts and probably getting a moratorium on interest payments and this is due to the impact of the pandemic,” he said.
He added further that in the first three months of the lockdown, most clients went into scrambling for liquidity by either getting new facilities or restructure existing ones just to survive.
For them, the key issue is just for their businesses to survive through the pandemic since not much of the fiscal stimulus has been extended to them unlike what has been in other countries like in the advanced world, he said.
Oyewole noted that in normal time, companies could be advised to get a loan from the bank or go for equities instruments but now, mergers & acquisition is on standstill.
Meanwhile, most investors who have the capital to invest are holding on to their liquidity while those who are investing are doing so like a vulture or scavenger, looking for cheap assets to invest in. “So, what we have done is that we advised clients not to sell their assets but rather, let them use relationships from the bank to get liquidity. Many of these businesses have assets hence they can leverage on that to get liquidity,” Oyewole said.
Idowu Thompson, head, private banking, First Bank of Nigeria, alluded that although the economy has seen some fiscal and monetary push including the renegotiating of loans by banks, the one-year moratorium of government loans and the N50 billion stimulus for businesses, however, these supports are still far from being enough.
In his words, He, however, explained that this is the right time for people to be deliberate with their investments by sitting down with their private bankers and advisers to revalidate their portfolios.
“I do not think it is the right time for anyone to panic,” he said.
“When it comes to a period of uncertainty such as the type we are in now, you cannot rule out volatility, said Taiwo Yusuf, head, asset management, Meristem Wealth Management.
According to Yusuf, there will likely be a U shape recovery of the markets hence, the lows that were seen in April might be the lowest to occur.
Yusuf noted that there has been a gradual recovery of asset classes from the lows seen in April. “We should be seeing more stability in the market going forward,” he added.
Paul Onwuanibe, CEO, Landmark Group, while narrating how the pandemic has impacted on businesses said over a 6 months period, his firm saw less than 6000 visitors as opposed to an average 320,000 in which it saw in previous years, signalling how negative the impact has been.
He, however, noted that in salvaging the situation, his firm developed a 4Cs which includes communication by engaging with stakeholders, credit which has to do with ensuring a strong cash flow while also cutting down cost; colleagues which have to do with staff welfare and job security; then lastly, customers, buy promoting sustainable infrastructural changes to keep customers safe.
Quotes from the panelists
Many persons tend to use wealth management and private banking interchangeably but it’s not supposed to be so. Wealth management as it is being practised by global banks in London goes beyond walking up to clients and talking to them about their financial needs, products or investment, to include holistically having a view of clients lifestyle right from the financial assets that they own to tax planning and to their non-financial assets as well as how these assets are structured,” Bimpe Nkontchou, managing principal, W8 Advisory LLP.
“Wealth, as described in developing countries like Nigeria, is different compared to what is obtained in other countries given Nigeria’s history and given its informal sector and economic breakdown. wealth managers should be country-specific when dealing with clients as opposed to dealing with them from a global perspective,” Akintoye Akindele, chairman, platform capital
“A lot of Nigerians are riding a very tight line on liquidity. Most of the people I meet are assets rich but are cash poor. This is a brave approach to investing however, it could be risky and the pandemic has taught us that so part of what we are doing is to help our clients to cash plan,” Martins Emodi, co-founder/partner Wealth Partners AG Switzerland.
“One of the first things we recommend at this time is to buy fixed-income assets, which not only help preserve capital but guarantee a healthy return. For those who are heavily exposed to residential real estate, we are also advising them to sell down on some of them to have a diversified portfolio,” Titi Adeoye, founder of Sankore Investments, said.
“At a time like this, construction of one’s portfolios in line with well defined specific needs cut across various asset classes and sectors could be a better decision for any investor,” said Samuel Enuechusue, head of investment management, Investment One said.
“Given current economic realities, the fixed income space is still a sure bet for investors as the market comes with numerous benefits including the fact that it is risk-free, there is tax advantage and more liquidity hence, there is no point diversifying assets away from fixed income space, Lanre Fabunmi, MD Aiico Capital,
“In dealing with clients especially in this period, fund managers, as well as wealth managers, have to uphold three Ts which are transparency, truth and trust, as the three are necessary to underpin the relationship between advisers and clients and how they deliver,” Esiri Agbeyi, partner at a global consulting firm, PWC.
“Aside from the fact that we have seen companies finding ways to cut down cost, we have also seen them sitting with bankers renegotiating contracts and probably getting a moratorium on interest payments and this is due to the impact of the pandemic,” Tunde Oyewole, country MD, DLA Piper Nigeria.
“This is the right time for people to be deliberate with their investments by sitting down with their private bankers and advisers to revalidate their portfolios. I Io not think it is the right time for anyone to panic,” Idowu Thompson, head, private banking, First Bank of Nigeria
“There will likely be a U shape recovery of the markets hence, the lows that were seen in April might be the lowest to occur,” Taiwo Yusuf, head, asset management, Meristem Wealth Management.
“In salvaging the pandemic, we developed a 4Cs, which includes communication by engaging with stakeholders; credit which has to do with ensuring a strong cash flow while also cutting down cost; colleagues which have to do with staff welfare and job security; then lastly, customers, by promoting sustainable infrastructural changes to keep customers safe,”
Paul Owuanibe, CEO, Landmark Group,
