10 July 2019

Nigeria: Asset Management Firms Increase Mutual Fund Offering

Asset management companies in Nigeria are increasingly offering money market funds (MMFs) as an asset class, targeting the country's risk adverse retail market, Augusto & Co has stated.

According to a report made available to THISDAY, these funds which are perceived to be low risk alternatives to other more traditional asset classes, account for over 70 per cent of collective investment schemes and 25 per cent of non- pension assets under management.

The report noted that, MMFs offers comparable yields to short term government securities with annualised yield of about 13.2 per cent as at first quarter of 2019, higher than the 11.3 per cent on 90-day treasury bills as at the same date.

"In managing these funds, asset managers have traditionally conformed to higher credit standards above the benchmarks, with most holding over 65 per cent of net assets in risk free securities and other highly rated securities resulting in a superior risk reward profile when compared with a number of investment vehicles.

"The company's fund risk rating assesses exposure to loss of principal risk based on a portfolio's investment strategy and guidelines which aids when assessing a Fund's exposure to liquidity, credit, currency, pricing risks and interest rate," it added.

The company further noted that, "The MMFs are poised to continue dominating the collective investments schemes in the short to medium term, which will account for a projected 28 per cent of the total non -pension assets under management by the year 2021 (2018:25%), with three additional MMFs set to launch in 2019 alone.

"This turn of event is earmarked by the current high risk environment, which resulted in investors being more conservative and seeking risk adverse asset classes away from the equity instruments and traditional fixed income.

"The MMFs continue to appeal to customers in the diaspora ranging from institutional investors to the mass affluent and the high net worth individuals (HNIs).

Augusto & Co also explained that, "The fund's major target is the public with many MMFs having a minimum investment range of N5,000 to N10,000, and these funds help drive more retail participation within the Nigerian Capital Market, largely due to the current macroeconomics headwinds that derails the performance of the traditional investments outlets."

Nigeria

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