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By Chinwendu Obienyi
A huge spike in the digitisation of financial and educational services in 2020 emerged as a result of the COVID-19 pandemic which forced every economy (especially Nigeria) in the world to cease major economic activity to control the disease.
The infection created opportunity for nations to do business and interact with investors and customers via online technologies. Even the nation’s capital market – the Nigerian Exchange Limited (NGX) had to activate a 30-day remote working plan after closing its trading floors temporarily.
Today, companies, customers as well as investors are getting addicted to the tools of advanced databases and artificial intelligence due to the ease of transactions and holding meetings at convenience places in any corner of the world through online mode of communication.
This situation has made accessing the financial and capital markets simpler as Nigeria’s investment industry offers a broader range of products, enabling younger and less affluent segment to invest affordable sums online, via solutions that can be accessed from a hand-held phone.
In the past, Nigerians with sufficient capital to invest simply opened basic deposit accounts which reflected the performance of high-yielding treasury bills underwritten by the Nigeria Deposit Insurance Corporation (NDIC).
Eighteen years ago, mandatory employer-provided pension fund schemes, managed by professional pension fund administrators began attracting a larger share of domestic investment as employees began allocating funds to retirement savings accounts.
Today, the nation’s retirement savings industry is worth N13.4 trillion, in an economy with an annual government budget in the region of N17.3 trillion.
The massive growth of the pension fund industry in recent years, points to the volume of savings available in the Nigerian economy. This highlights an even greater potential for growth should more Nigerians gain access to a broader range of tools with which to access the country’s capital markets.
Certainly, the country’s experience with pension funds has developed a much more favourable attitude to investing in general, and towards investment funds in particular.
Today also, many more Nigerians, witnessing the growth of their retirement savings, believe it makes sense to allocate additional discretionary cash to mutual funds.
Mutual fund investment is a pool of funds by investors that can be used to create wealth through the money and capital markets which can also be used to finance critical infrastructure and expand business operations.
With mutual funds now more likely to outperform basic deposits, the independent fund industry in Nigeria has grown in the last five years alone. According to the Securities and Exchange Commission (SEC), assets under management in Nigeria’s mutual funds industry grew by 50 per cent, accounting for N1.6 trillion in investments in 2020.
Investigations in the mutual funds data released by the SEC showed that Money Market Funds recorded the highest Net Asset Value (NAV) in absolute terms at N606.258 billion year-to-date (YtD) April, 2022 from N525.532 billion in the corresponding period of 2021. The value represents 43.1 per cent of the total NAV of the entire market YtD, April 2022.
While this is still relatively small compared to the retirement fund industry, these numbers demonstrate the potential for growth. In such a fast-growing market faced with such a large opportunity, it goes without saying that not all mutual funds are created equal.
As with all investing, investors need to be confident that they are working with regulated professionals leveraging world-class research and risk management methodologies to build and operate transparent mutual funds delivering measurable returns.
Recently, the SEC warned investors to be careful of patronising unregistered investments crowdfunding and illegal fund managers’ platforms. Hence, to this end, it is important to state that there are about 127 companies registered with the commission with a mission to change the narrative around mutual funds.
One out of the companies, Coronation Asset Management, recently introduced four exciting funds to market namely; Coronation Money Market Fund, Coronation Balanced Fund, Coronation Fixed Income Fund and Coronation Fixed Income Dollar Fund.
These existing funds will very soon be augmented by its new Multi-Asset US Dollar, High Net-Worth Fixed Income, and Infrastructure funds. According to the company, these funds are a mix of accessible, easily-understood and transparently managed funds and will provide a much younger, less affluent, segment of Nigerians with access to Global Investment Performance Standards (GIPS)-approved funds.
It is important to emphasise that receiving GIPS approval in Nigeria is no small achievement. GIPS approval means that funds are managed in accordance with global best practice. This is particularly assuring for first-time investors who may not understand the complexities of investing, but need to be certain that their investments will be managed in a professional and accountable manner, in accordance with global best practice and full client oversight.
One of the great things about Nigeria’s capital market today is that the regulator- SEC is taking a giant stride to create the proliferation of web-based mutual funds. Platforms are opening the country’s capital market to younger and more digitally literate customers.
The proliferation of these platforms and the funds that they offer, while not all created equally nor managed to the same global standards of professionalism or transparency, are nonetheless opening the nation’s capital markets to a broader segment of investors than ever before.
In the shortrun, leveraging digital technology and global best practices in fund management to make far more funds available for greater investment in a much broader range of industries and sectors will contribute to the country’s effort in financial inclusion as well as finance critical infrastructures in the economy.
There is however much work to be done and the SEC needs to collaborate with other stakeholders to ensure our market is competitive amongst its peers.
