The Nigerian asset management industry (“the Industry”) has defied a tough macroeconomic climate to achieve impressive growth. Over the past five years (2019-2023), its Assets Under Management (AuM) have risen significantly, achieving a compound annual growth rate (CAGR) of 21.9%, and reaching an estimated ₦5.9 trillion ($6.6 billion) by year-end 2023. This also marks a remarkable 40% leap from the previous year, driven by the expansion of dollar-denominated portfolios and higher yields (particularly in the latter half of the year). This impressive growth path is even more remarkable considering the significant headwinds confronting the Industry – a deteriorating macroeconomic environment, with rising inflation and a volatile currency, shrinking real incomes and dampened overall savings. This translates to a double whammy for the Industry: less money to invest and lower returns on investments.
Catering to a Diverse Clientele
The Industry is also undergoing a fascinating democratisation. Once an exclusive playground for the ultra-wealthy, it is now actively courting the “mass affluent” and even retail investors. This shift is evident in the surge of managed assets from the retail sector, fuelled by two key factors: Nigeria’s demographic dividend (large population) and lower investment barriers. In addition, Industry players are leveraging technology to make investing accessible and user-friendly for retail investors. This tech-driven approach is proving to be a game-changer, attracting a new wave of participants to the market, and is poised to become a key differentiator for asset managers in this ever-evolving landscape.
Segregated Portfolios: The New Leader
Agusto & Co. estimates that segregated portfolios accounted for a significant 58% of the Industry’s AuM, amounting to ₦3.4 trillion as at the end of 2023. This represents a remarkable 40% increase year-on-year and marks the second consecutive year segregated portfolios have eclipsed Collective Investment Schemes (CIS) in terms of AuM share. In comparison, CISs currently hold a smaller 34% share (₦2.05 trillion), while alternative assets – including publicly-listed private equity and infrastructure funds – comprised the remaining 8% (₦458 billion) of the Industry’s managed assets. This trend reflects investors’ growing preference for passive and alternative investments as they seek higher yields.
High-net-worth individuals (HNIs) and corporations have increasingly favoured segregated portfolios, driven by their desire for specific investment vehicles such as regional Eurobond issuances, which typically offer higher returns and provide a currency hedge – an advantage that is often absent in traditional CIS options. Furthermore, the Industry is witnessing a broader transformation. Numerous asset managers are now embracing technology to streamline operations and increase penetration. And while still in its nascent stages, we are also witnessing a growing emphasis on Environmental, Social, and Governance (ESG) considerations, particularly among foreign-owned asset managers, who are progressively integrating these factors into their strategic frameworks. This shift highlights the Industry’s agility in adapting to evolving investor preferences and a dynamic regulatory landscape.
Crossing the ₦10 Trillion Threshold by 2025
Agusto & Co. forecasts an impressive average growth rate of 32.4% over the next two years, propelling the Industry beyond the ₦10 trillion threshold by 2025. While this represents a slight deceleration from the extraordinary 45.8% average growth rate of the past two years, the Industry remains on a notably robust trajectory. Growth is expected to be driven by higher yields, increased investments from pension fund administrators and institutional clients, and the strategic allocation of funds to international money markets as a hedge against a volatile naira. Furthermore, the anticipated growth trajectory is likely to be fuelled by the rise in infrastructure funds, segregated portfolios, and REITs (to a lesser extent). However, we acknowledge that a persistent decline in macroeconomic fundamentals could throw a wrench in these projections. Nonetheless, the Industry is projected to remain profitable, with pre-tax return on average equity anticipated to outperform both inflation and one-year government treasury yields.
Regulatory Agility in a Dynamic Market
Agusto & Co. applauds the Securities and Exchange Commission’s (SEC) recent efforts to strengthen the asset management industry’s framework. In recent months, there has been a series of regulatory enhancements, including introducing new regulations and updating existing ones. This focus on beefing up risk management and creating a secure environment for all is a positive step for investors and asset managers alike. Ultimately, it fosters greater investor confidence, a crucial ingredient for a healthy industry. In the near term, Agusto & Co. expects the SEC to maintain this momentum, with a focus on rolling out further regulatory controls and amendments in the coming years. The goal? Aligning Nigeria’s investment landscape with the highest global standards. This evolving regulatory landscape presents both challenges and opportunities. Asset managers who can demonstrate agility and adaptability will be best positioned to maintain their competitive edge in this increasingly dynamic market.
Innovation, Diversification, Regulation – A Recipe for Growth
Looking ahead, we believe that the resilience of the Nigerian asset management industry in the face of economic challenges underscores its potential for further expansion. By embracing technological innovations, diversifying product offerings, and maintaining a robust regulatory environment, the Industry is well-positioned to navigate the evolving landscape and deliver sustainable value to investors. However, persistent issues such as inflation, currency volatility, political instability, and insecurity pose considerable risks. The Industry’s ability to navigate these challenges will be crucial in maintaining its growth trajectory.