By Adedapo Adesanya
Research and ratings agency, Agusto & Co., has estimated that Nigeria’s assets under management (AuM), as of the end of 2022, grew by 25 per cent to N3.5 trillion ($7.8 billion).
This makes Nigeria the third largest investment management zone in sub-Saharan Africa, after South Africa and Morocco.
In a note shared with Business Post, it was stated that this growth was driven in part by increased investor confidence following the gradual rise in the yields offered on naira-denominated investments during the latter half of the year and growth in dollar-denominated portfolios as discerning Nigerians hedge against the persistent devaluation of the naira.
Nonetheless, despite Nigeria’s population estimate of 220 million people and the high foreign exchange remittance inflows from Nigerians living in the diaspora ($20.9 billion or N9.3 trillion in 2022), the asset management industry continues to underachieve.
The firm noted that the industry’s growth remains constrained by a large informal sector (estimated at 65 per cent of GDP), a high poverty rate of 40 per cent and limited investment opportunities offered by the Nigerian capital market.
It warned that the challenging operating environment in Nigeria has led to an erosion of real incomes and purchasing power, prompting a surge in investors’ inclination towards dollar-denominated assets.
“The escalation of the year-over-year inflation rate from 15.6 per cent in January 2022 to 21.37 per cent in December 2022 is indicative of an unfavourable macroeconomic climate. In addition, the parallel market exchange rate stood at N750/$ as of December 31, 2022, indicating a 63 per cent arbitrage from the official market rate and a 32 per cent depreciation from N570/$ recorded in the corresponding period of the prior year.”
According to Agusto, Naira-denominated investments have lost their lustre in light of current market conditions, and investors are instead looking to high-yield alternatives and FCY-denominated investments.
“In 2022, segregated portfolios accounted for more than half of total managed assets (52 per cent), which amounted to N1.76 trillion as of December 31, 2022, – 40.2 per cent higher than in 2021 – marking a noteworthy shift in the Industry as segregated portfolios overtook collective investment schemes (CISs) in terms of AuM share for the first time in three years.”
Segregated portfolios include privately managed discretionary and non-discretionary client funds, as well as other private collective investment schemes, which provide investment options that are tailored to the unique risk profiles and investment objectives of individual clients. Unlike collective investment schemes, segregated portfolios provide more flexibility and autonomy as they are not directly subject to the scrutiny and monitoring of the Securities and Exchange Commission (SEC).
Agusto estimated that CISs accounted for 42 per cent (N1.37 trillion) of AuM in 2022, while alternative assets – comprising publicly-listed private equity and infrastructure funds – accounted for the remaining 6 per cent (N345 billion) of the asset management industry’s managed assets as at the same date.
“Investors have shown a growing inclination towards privately managed portfolios rather than the often more restrictive and conservative collective investment schemes, as they seek to gain relatively higher yields from investments.
“In addition, many asset managers have focused more on fostering the growth of segregated portfolios through their investment advisory services while also improving product distribution and enhancing customer experience.
“Furthermore, segregated portfolios have continued to account for a large portion of the Industry’s AuM due to the large volume of funds invested by high-net-worth individuals (HNIs) and corporations seeking exposure to specific investment vehicles (in many cases regional Eurobond issuances).”
These specific investment options typically offer relatively higher returns and provide a currency hedge, which may not be widely accessible with collective investment schemes,” it noted.
Giving an outlook, Agusto & Co. anticipates a moderate increase in the size of the asset management industry, with an estimated average growth rate of 15.9 per cent over the next three years.
This will result in total AuM reaching the N4 trillion mark by 2024, it said.
“Growth is expected to be driven by various factors, including increased investments from pension fund administrators and institutional clients.
“The unification of exchange rates is anticipated to result in the repatriation of funds formerly invested in international money markets and reignite foreign interest in naira-denominated assets.
“Furthermore, the anticipated growth trajectory is likely to be fuelled by an increase in the size of segregated portfolios, infrastructure funds and REITs, amongst others.
“The prolonged deterioration of macroeconomic fundamentals, which might severely reduce discretionary income and the marginal inclination to save, remains a risk to the growth forecast.”
