A growing industry in need of risk management and performance data
The Nigerian fund management industry currently offers levels of growth probably only exceeded in the tech sector – in fact, part of the industry is driven by the tech sector.
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 a 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 riskfree 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.
Second, a key factor in the growth of funds globally is a wide choice of products catering to different risk appetites and detailed performance data. Nigeria’s fund management industry is not yet mature in either regard.
A brief look at fund performance websites in developed markets (we give some examples in this report) reveals a vast amount of information for the use of investors and professional fund distributors, something which continues to build confidence. We think that generating this kind of information is key to the Nigerian industry’s future.
Total Assets Under Management of Nigeria’s mutual funds, and T-bill rates, Jan 2012 to present
