Nicholas Nyamali: It is Possible to Retain ‘Hot Money’ in Nigeria

16 Dec 2012

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Mr. Nicholas Nyamali,

Following the decision of the board of GTBank Plc to divest from GTB Asset Management Company Limited, one of its former subsidiaries, the asset management company after a management buyout was renamed Investment One Financial Services Limited. Its Chief Executive, Mr. Nicholas Nyamali, in this interview with Festus Akanbi and Mary Otunkpe, speaks on the enduring culture of excellence of GTBank and what could be done to retain foreign investment in the country

How come it’s the management buyout option that the management voted for?
The primary reason why we decided to do a management buyout is that we believe in the vision of the company and its history and the direction it was going to and we believe we were the best people to continue with the vision. This is a new company, we started in 2008. The idea of the company started in 2007 when I spoke with the late managing director of the bank, late Tayo Aderinokun and the current MD Segun Agbaje about looking for an avenue on the platform to help Nigerians with investments. We think if we continue with this business, we will be able to continue with that vision, however, if we exit it and for instance the bank had been sold to others, that original vision will not continue. That was what motivated the management to seize the opportunity and we are grateful to the bank for giving us the opportunity to buy the company and continue the vision that the company set out to achieve.

What is your assessment of the Nigerian economy in the past 12 months?
I believe Nigeria, as a country, has seen some progress in the last one year. One of the biggest concerns we had at the beginning of the year was the impact of fuel subsidy removal and everybody felt, inflation wise, it could send the economy spiraling. We also felt disruption to productive environment could drag throughout the year but it was a pleasant surprise to find out that government and the organised private sector including the labour were able to resolve the crisis very quickly and this enabled us to get better than we anticipated at the beginning of the year. Security-wise and politics, I think these are the two areas where we hope for more improvement.

The bomb attacks, the insecurity have been there, but in other areas of economy, I think we have seen significant progress. The banking sector has gone through its blues in the past and I think we can see through the numbers they are producing this year that the banking sector has been fixed and it’s moving well. In the monetary space, I think the CBN Governor is doing a great job, he has been able to keep exchange rate stable. Inflation is under control. Interest rate is a bit high but looking at the choice between exchange, interest rate and inflation. We know in the long time, having a high interest rate is not good for the real sector but we have also seen his attempt to creating specialised funds to help specific sectors like agriculture and aviation funds. I think the monetary space is okay and we have seen significant improvement in the fiscal side. The  Cordinating Minister for the economy is also doing a great job to bring about fiscal discipline in the way government is managing its finances. So, overall, I think the economy is in good shape and one interesting indicator of this good shape is the fact that the reserves have being growing, the stable oil price and the fact that the country oil production is okay, with the resolution of issues in the Niger delta. The external reserves is growing and this is an indication that more foreigners are bringing in more money to our economy, both in terms of the bond market, the equity market and direct investments and these are evidence of the confidence they have in the economy.

Having seen some of the fundamentals in next year budget, what should Nigerians expect?
I will start by giving credit to the Minister of finance. The budget we have seen shows government is trying to reduce its overheads in terms of its share of the budget and concentrate on capital development. We now want to have capital project taking the lion share of the budget. On the issue of corruption, Transparency International in its latest ranking said we are the 35th country in the world that means the war on corruption should be renewed. We need to deal with the issue of bombing and other forms of insecurity as well as making government to leave a good image about business. This is one of the areas government must look at next year.
Secondly, we think the issue of politics should not be disruptive. We know in Nigeria 2015 is still a long time, but we are worried that if politics starts quite early, it may distract government attention to economic development issues.

Do you share the same sentiment with some members of the financial community that the inflow of ‘hot money’ could be disruptive to Nigeria’s economy?
By definition, hot money is hot money if it is there for a period and it will go. However, the fundamentals in the country are impressive and so people are coming in. If the government continues in that path that encourages those fundamentals to remain attractive, what is defined as hot money can become cold money by becoming money that will stay in the economy for a very long time but if those fundamentals should change for the worse, then individuals who have those investments would pull them out quickly? I think the availability of funds in the short terms has value for the economy so we have more money in our reserves and we have more than we had in the past. That is great. The challenge is for the government and for those in the economic circles to continue to provide the environment that allows the money to stay for a long term. There are several reports coming out. I can mention a few, the Economist magazine, McKenzie report, and Rencap report. Each of these reports say Africa is the next destination and Nigeria is the point of call. As we go, we talk to our customers outside the country and I can tell you that it is clear that people are interested in investing in Nigeria and so government needs to step back as well as those of us in the private sector and ask the question, what are these investors looking for and what are they worried about. The issue of insecurity is a point of worry. If we fix this issue of insecurity as an example and other areas of concern, you will find out that more investments will come, and not just investments that are short term, investments for longer term and so the concept of hot money will disappear. People want to invest. It’s hot money to the extent that they are not comfortable, they are a bit shaky as soon as they find out that thing are changing, they pull them out. What we are saying is that in the long run, money in the economy is good, we need to do what is required to retain the money.

How come we seem not to have learnt our lessons from the 2008 capital market crises given the allegation that share price manipulation has resumed in the country. What is your stand on this?
In my opinion, I do not believe there is share price manipulation going on. When you look at the fundamentals of some of the stocks and the Nigerian stock market, you will find out that stocks in the exchange are grossly undervalued. Generally, few of them have good valuations, but if you take a sector like the banking sector, that is totally undervalued. You have stocks in the banking sector that are doing price to earnings ratio of five, six which is extremely low for an emerging market like ours. Take for example, banks like GTBank or First Bank, they are set out to make up to N100 billion this year and they have 30 million shares so we are saying for every unit of shares we will do N3 per share and we expect that the will continue to do that going forward but First Bank is priced at about N15, so what you are saying is that even if they stop at N100 billion each year, First Bank stock remains N3 per share on a stock in five years, you will get back your N15 spent in buying the stock. Your pay back is five years. Is that a right value for a company that you put the money and that in five years you will get your money back? That totally undervalues First Bank. GTBank at N20, maximum six or six and half, you get your money back, we think that totally undervalues GTBank. So in my opinion, with the kind of performance we are seeing in some of the sectors, a good example in the banking sector, we think the current stocks in that sector are grossly undervalued. However, it is a great opportunity to those who believe in the market. I tell people that the prices of these stocks are totally low and this is the time to buy them. First Bank, at the beginning of this year was N11; it went to N17 and came down to N15. So if someone had invested in First Bank, within a spate of one year, he would have made 70 percent. That is significantly higher than money market and fixed income can give to you. And we are even saying the N15 is not the best price of First Bank, it is worth more than that and if you have that as a perspective, in my opinion, market is not over-valued and what we called the share price manipulation is not founded on facts. The market is totally undervalued maybe the reverse is the manipulation we are talking about not that the prices are being inflated.

On the lesson of 2008, I hope Nigerians are learning their lessons. The lesson is that if you do not understand an investment, do not go into it, you need the service of a fund manager. I think the lesson of 2008 was that many people who have no knowledge of investments just ran to the market and the second problem is we started borrowing and we know that margin loans increased the volatility in the market and that just drove up prices and when prices started to get back to their true value professionals saw real value and said I will not sell beyond this price and I shouldn’t sell lower, but those who did not have knowledge were selling to get out and the fact that they were dumping their shares increased the reality of the fall we saw in 2008. The lesson from 2008 is that people should rely on their professional advisers when making investment decisions rather than do it on their own.

What are you doing to further educate Nigerians on investment because investment education is lacking in the country today?
One of the pillars on which this company was set up was to provide investment education; the second pillar is investment service. The first leg of our vision is knowledge which is to provide basic education and the service what we want to provide. The total number of Nigerians who are in the equity space is quite low for a country of 160 million people and we are seeing that the implications of this are many. One, individuals want to do self investment and if you ask an average Nigerians, the idea of investment is to buy a plot of land, build a house, and I may probably build a second house which will serve me after my retirement. That is the concept of investment for the long term retirement investment for Nigeria is more than that. Secondly, we found out that average Nigerian’s knowledge of investment is small. A good investment product will enable one to meet diverse kind of needs. We think if more people are educated, then they will invest better and they will use professionals and this is a major plank of what we are trying to do.

In addition to calls we send to our customers, we also have regular seminars which we organise just to educate people. We are partnering with government and the private sector to do this. We have been to several companies on a weekly base, we have a team that meets with companies, get appointment with them and agree on when to provide education to their employees. We have been able to do this with the Kwara State government where officials from level 8 and above and political office holders came for a two-day investment seminar, which we organised in conjunction with the government just to provide knowledge of investment to the civil servants in the state.  We have been able to do this with the ministry of works. We organise this at no cost to these organisations. The idea is that is our own way of adding value to the economy.

Now that you have exited the GTBank group reputed for its robustness in terms of size and operation, will you say you are missing anything?
Definitely, there is value in being part of GTBank in terms of corporate governance that we inherited from the bank, the strategic direction and personally, the oversight from the bank has been great. You cannot value working with someone as great as the current management team of the bank headed by Mr. Segun Agbaje, who is leading a great organisation. We have learnt so much working under the management of the bank and it is up to us to continue in the same spirit and also to continue in the same way. Definitely, there will be value in continuing. The bank is a great brand, the oversight from the bank is great but we think we have learnt enough to stand on our own. We have inherited a lot. I have been with the bank for over 10 years. I’m not new in terms of my relationship with the bank. I worked in the bank in the past and I think we have learnt enough from the governance, the policies and ethical standards of the bank and we think it’s time for us to execute the same traits even though we are not directly under the bank.

What share of the industry did GTB Asset Management control and  what is your new target?
When we started in 2008, we had zero. GTBank had one asset management company called ARM. GTBank exited in 2006.  So, GTBank set up GTB Asset Management to provide investment management services to Nigerians.

On our market share, unfortunately, there are no publicly published data in terms of each of the asset management company in the country so it will be difficult to do a direct comparison but the interesting thing is that between 2009 when we started and now, we have   been able to attract customers fund that we manage totaling over N15 billion. I think it is a great level of success but unfortunately, I’m unable to put it in terms of market shares because I do not know what other firms are doing.

What do asset management firms do?
Asset management as a business is really helping corporations or individuals to manage their investments whether it is in fixed income, things like treasury bills, maybe bonds or money market instruments as simple as money you put in the banks, the popular example is equity, which is a second class; real estate and commodity derivatives. Those are asset classes, there are different things you can do to manage it but the idea is to monitor it so that it can grows. In every part of the world there is inflation, so a thousand naira today will not have the same value in 10 years time. So one of the key objectives of an asset management company is to protect the value of funds so that your 1,000 naira should grow at a rate higher than inflation so that its value in 10 years time will be the same value as what a thousand naira was 10 years ago. It’s helping people manage their investments and the goal is to exceed what inflation is so that people can maintain the value of their actual investments. But more than this, it’s also helping people to look towards a healthy retirement. If I hope to retire in a few years time and I want to put aside funds, I need someone to help manage those funds so that at the point of retirement, those funds would have attained a level of size to enable me obtain the comfort I want. Again, it could also be for specific objectives. For instance, there are some investments attached to charitable objectives. If I want to set up a fund to fund a certain group of people, I could have the fund given to a manager who will manage and produce returns that will meet the objectives of the charity.

With the change of identity, what are you doing to maintain your old customers and win new ones?
Ours is not really a new company. We have been around for about four to five years now but the fact remains that we have exited GTB to get a new identity, that is a fact and one of the things we have done is to engage with all our customers. We have kept them on the know, when we divested at least since last year when the change of name was coming up and when we did the change of name, we feel we should also tell them. Another thing we have done to retain old customers is to continue to provide good service, provide market insight that is valuable so that the customers will know we will give them information that is valuable to help them make wise investment decisions. We also provide innovations in terms of the flexibility to meet investment objectives of our customers.  As a firm, we have positioned ourselves to meet individual needs rather than coming up with one product or one fits-all solution. We are flexible in creating specific products to meet the needs of customers.

Are there plans to re-orientate your staff and recruit new ones?
We have always have a good recruitment policy where we try and get the very best people and ensure they have the right attitude and the y have the right training and the right culture to serve our customers. The business is about serving customers and if the people fail to provide that service, the company has failed. We are very particular about the kind of people we bring on board. We have been doing this in the past and we will continue to do it. In the past, people had always identified us with the GTBank, but now we are independent, we are committed to do things in the same manner. People must see it in us not because we were a subsidiary of GTBank.

What are the challenges you meet in the course of your operations especially in dealing with all manners of clients?
We have different kinds of clients, for companies, which could be called high networth customers and the retail customers which are individuals. Their needs are different and we recognise this. The challenges may differ according to the different segments but the big challenges we find especially in the retail space is that Nigerians have little confidence in investment managers and they want to do it themselves. I think that is a peculiar problem in our country. A lot of individuals believe self help is the right way even in the field of medicine, people do self medication, and people have legal documents they want to prepare the documents themselves they don’t want to go to lawyers. We have also seen it in investment space; people want to manage their investments themselves rather than trusting or relying on the professionals. This is more with the retail space. Institutions and HNIs understand the value of professional advice and they tend to use it. The second challenge is the misunderstanding of how investments work. For example, individuals asking for returns which are not commensurate with the kind of risk they take.

The fundamental principle of investment is that risk and returns go together, if you want a higher level of returns, you must take more risks. People don’t want to take risks, but they want to take the returns. By interacting with our customers, we have noticed significant understanding of the principles of investments. They are showing understanding of the nature of risk they are going to take.

Tags: Business, Nigeria, Featured, GTB Asset Management Company

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