BCG Tips Nigerian Market for High Returns on Private Capital Investments

Dike Onwuamaeze

The Partner and Managing Director of Boston Consulting Group (BCG) Nigeria, Mr. Stefano Niavas, has advised private capital investors who are seeking huge returns to focus their attention on Nigerian markets.

Niavas gave this advice while commenting on the report of the 20th edition of BCG’s annual study of the assets industry titled, “Global Asset Management 2022: From Tailwinds to Turbulence.”

He said: “Africa’s economy continues to be attractive to private capital investors who are seeking huge returns and Nigeria tops the list of countries that had remarkable private capital inflow in 2021. A larger share of these funds was invested into venture capital assets followed by infrastructure and then private equity. About 145 Venture Capital deals were reported in Nigeria in 2021, with a total value of $1.1 billion, according to African Private Equity & Venture Capital Association (AVCA).

“This is a wake-up call to assets fund managers to take advantage of this trend and position themselves for an early win in this dynamic asset management industry as alternative products promise better performance.”

The BCG’s report said that emerging trends that are expected to shape the future would include an increasing shift of portfolios into alternative assets in the pursuit of higher returns compared to publicly-traded markets.

The BCG report stated that “revenue from alternative assets such as private equity, hedge funds, and real estate assets would grow to more than half of the global revenue in the next five years.  

“Alternative products represented more than 40 per cent of total asset management revenue in 2021, despite comprising less than 20 per cent of global AuM. This trend is expected to continue over the next five years, with revenue from alternatives forecast to grow to more than half of all global revenues in the industry by 2026.

“Over the next five years, we expect the revenue from alternatives to grow to more than half of all global revenues, thanks in large part to the fees that alternative assets command.”

The report added that with $100 trillion to $150 trillion in capital deployment required to reach net-zero goals by 2050, demand for sustainable investments represents an opportunity that would dominate the sector in both the short and long term.

“Roughly $20 trillion to $30 trillion is expected in bond and equity allocations for asset managers, much of it frontloaded over the next few years as more investments flow into climate-transition projects,” the report said.

The BCG noted that asset management industry continued its unprecedented growth trajectory in 2021, with global assets under management (AuM) rising by 12 per cent to $112 trillion, significantly above the 20-year growth average of 7.0 per cent.

It identified strong performance in equity markets as the key driver, representing 90 per cent of revenue growth between 2005 and 2021. 

It also said that despite rising costs, operating profit margin rose to a healthy 38 per cent in 2021, up from 36 per cent a year earlier, as average AuM growth outpaced the increase in costs.

The BCG Managing Director and Partner, Mr. Chris McIntyre, said: “The incredible market run that has fuelled the performance of the asset management industry over the past 15-plus years has been a double-edged sword. On the one hand, it has provided strong tailwinds for the sector, but it has also challenged innovation, allowing the market to be dominated by legacy products that benefit from the compounding effect of returns on underlying assets. There are signs that these trends are beginning to shift, and the ensuing turbulence is an opportunity as well as a challenge for industry players.”

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