Agusto & Co’s 2022 Asset Management report (the Report) focuses on the activities of non-pension asset management companies in Nigeria, as well as the various products available in this space. The Securities and Exchange Commission (SEC) regulates the non-pension market, which includes over 110 operators who manage collective investment schemes and segregated portfolios (on a discretionary and non-discretionary basis). A separate report covers the pension industry.
Nigeria remains one of the largest investment management zones in Sub-Saharan Africa, after South Africa and Morocco, with an estimated ₦2.6 trillion ($6.4 billion) in managed assets at the end of 2021. The Nigerian Asset Management Industry (‘the Industry’) has grown at a compound annual rate of 20% over the last five years (2017-2021). However, the Industry’s assets contracted by 5% in 2021 as a result of the low yield environment, heightened inflationary pressures, deteriorating socioeconomic fundamentals, and the average Nigerian’s diminished propensity to save and invest.
The Industry’s product offerings could be classified into three key segments – Collective Investment Schemes (CISs), Segregated Portfolios and Alternatives. CISs, also known as mutual funds, are investment vehicles through which clients’ funds are aggregated and managed as a pool. Privately managed funds, which may be discretionary or non-discretionary, are referred to as segregated portfolios. In Nigeria, alternatives typically include non-traditional assets and investments such as private equity and infrastructure funds
CISs continue to account for a significant portion of the Industry’s managed assets. In particular, as at 31 December 2021, the AuM of CISs stood at ₦1.4 trillion, accounting for 53% of the Industry’s net assets. As at the same date, there were 125 registered CISs in Nigeria, with cumulative assets under management (AuM) of ₦1.4 trillion. Segregated portfolios accounted for a much lower 40% (or ₦1.07 trillion) of the Industry’s AuM as at the end of 2021. Alternative assets – comprising publicly-listed private equity and infrastructure funds – accounted for 7% (₦193.4 billion) of the Industry’s managed assets as at the same date.
The increase in monetary policy rate (MPR), change in the management of some mutual funds, expansion in the alternative investment space, and rising yields are some of the significant trends and developments in the Industry in 2021 and half year 2022. In addition, SEC’s new regulations include the increase in registration fees for industry operators, a revision of the annual supervision fees for CISs, guidelines on the issuance of social bonds, custody requirement for segregated portfolios and guidelines on the issuance and custody of digital assets.
The Industry’s earnings have maintained an upward growth trajectory despite an overall decrease in the size of the its managed assets and the weak macroeconomic climate. The notable rise in earnings could be attributed to a new fee structure and the increased demand for dollar-based investments which enhanced income through foreign exchange gains on proprietary assets. We expect to see continuous growth in the earning capacity of Industry operators, especially with the continuous inflow of funds from institutional investors such as pension fund administrators which have a large pool of funds with limited outlets.
Agusto & Co. anticipates that the Industry’s managed assets will grow moderately, by an average of 10% over the next three years, reaching the ₦3.5 trillion mark by 2024. In our opinion, the growth will be driven by higher yields, increased investments from pension fund administrators (PFAs) and institutional clients as well as increased asset allocation to the international money markets as a hedge against the depreciating local currency. However, the risks to our growth forecast remain the ongoing deterioration of macroeconomic fundamentals, which could significantly lower disposable income and the marginal propensity to save.
This report provides useful insights on various aspects of the Nigerian Asset Management Industry. Key benefits of the report include: