Coronation Asset Management Limited has stressed the need for investors to take advantage of investment opportunities in the mutual fund market.
The Head of Research, Coronation Asset Management, Mr. Guy Czartoryski, stated this during a virtual media briefing to unveil the firm’s latest report titled: “Shifting the Appetite of Nigerian Investors: From Savings to Mutual Funds.”
According to the report, the Nigerian fund management industry currently offers levels of growth probably only exceeded in the tech sector. In fact, he pointed out that part of the industry is driven by the tech sector.
It pointed out that investors are putting a growing proportion of their savings with funds – more so than with banks – just as, almost a generation ago, they began investing with pension funds.
“The fund management industry continues to build trust even in this early stage of its development. With this in mind, we believe it needs to address two challenges. The first is risk. Nigeria has left behind, in 2020, a 10-year period when yields on Nigerian Treasury Bills (T-bills) generally exceeded inflation, allowing fund managers to invest clients’ money in risk-free T-bills with little need for sophisticated risk management.
“Banks benefited from this as the primary destination of savings, as did pension funds. However, the fall in T-bill rates over the past year, combined with a surge in the value of Federal Government of Nigeria (FGN) bonds, demands a new level of risk management, in our view.
“Investment risk is rising as yields fall, and fund managers and investors need to master risk management and learn the benefits of diversifying their investments across asset classes.”
Furthermore, it pointed out that a key factor in the growth of funds globally is a wide choice of products catering to different risk appetites, and detailed performance data, noting that Nigeria’s fund management industry was not yet mature.
“Nigeria’s fund management industry is undergoing remarkable growth. Total assets under management (AUM) over the four years 2015 to 2019 more than doubled in inflation-adjusted terms and were up 305 per cent in nominal terms.
“The compound annual growth rate (CAGR) in total AUM from 2015 to 2019 was 22% in inflation-adjusted terms and 42 per cent in nominal terms. It would be difficult to find a Nigerian industry that matches this,” it added.
It stated that the closely-regulated pension fund administrators (PFA) have built up trust with their clients over the past decade.
“This in turn builds trust in the concept of fund management itself, giving savers the confidence to make voluntary savings with Mutual funds. By sheer bulk, the biggest contributors to the fund management industry’s growth have been Money Market Funds, which accounted for 61 per cent of total AUM by June 2020,” it added.