Management, Mr. Guy Czartoryski, during this interview speaks about the advantages of investing in mutual funds. Obinna Chima provides the excerpts:
You recently released a report on the Nigerian fund management market, are you able to highlight a number of the main findings?
We have been watching the way during which Nigerians save, and this is often changing profoundly. One change is that folks are avoidance from banks and investing in mutual funds instead. Banks wont to be the default destination for savings but this is often not the case. There are tons of reasons for this. One is that risk-free rates, or the rates available on Nigerian Treasury Bills have fallen sharply over the past twelve months, which is one reason why banks aren’t offering attractive rates on savings deposits.
Another reason is that banks themselves are subject to regulations that make them cautious about taking deposits if they can’t lend them on to clients, and that they also are subject to a high cash reserve ratio. There’s a cultural shift happening . Savers understand that a bank offers a guaranteed deposit but the bank also earns a selection thereon deposit.
By contrast, a open-end fund is required to share all its economics with its fund holders, less the fee which the fund manager charges. therefore the economic structure of a open-end fund has some advantages over bank deposits. people that are making long-term savings towards their retirement appreciate the difference. one more reason is fintech. Banks are traditionally related to impressive headquarter buildings, numerous branches and paperwork, with technology being largely out of sight.
So, we are watching extraordinary growth in mutual funds. the entire assets under management of Nigeria’s mutual funds over the years 2015 to 2019 rose by 305 per cent and quite doubled in inflation-adjusted terms. the worth of cash Market Funds rose by 11 per cent and therefore the value of Fixed Income Funds rose by 60 per cent during the primary six months of this year, and this is often during a recession. A deep-rooted change within the way Nigerians economize is underway.
Comparing the open-end fund market with the stock exchange or maybe the fixed income market, which of those will you advise investors to stake their money in today?
In the first nine months of the year the Nigerian stock market All-Share Index almost broke even, and with dividends the return was actually positive. However, over the past ten years the stock exchange has generally delivered disappointing returns and glued income has done far better . One reason for that was that Nigerian Treasury Bills on the average yielded about two and half per cent quite inflation over the amount from 2010 to 2019. Accepting that risk exists; learning about the risks of investing; measuring risk; and diversifying.
So, for instance , market funds involve little or no risk, fixed income funds involve a touch more risk, then come Balanced Funds and Equity Funds. So, the solution to the question is that risk management is vital to creating successful investments. Different savers have different acceptance of risk, counting on the time horizon of their investments and their ultimate investment goals. At Coronation Asset Management we are fortunate to partner with Cardano, a number one risk management consultancy based within the Netherlands which advises European pension funds worth many billions of Euros.
Risk management techniques became central to our investment process. The key skills are performance attribution, scenario modelling, back-testing and, at the top of day, judgment supported experience. therefore the future will look very different from the past. within the past interest rates were so generous that there was no use for classy risk management.
In the future savers are getting to take a mix of asset classes supported their investment horizons and acceptance of risk – actually they’re already do this. Savers can diversify their portfolios just by holding variety of various sorts of fund. and therefore the key thing is information, because investors got to keep up of their performance of their funds.
In terms of regulation, what does one think the SEC should do to encourage more participation therein segment of the market?
The Securities and Exchange Commission is laying the foundations for an expanding open-end fund sector by getting the bottom rules in situ . Last December we received the ‘Amendments to Rules on Collective Investment Schemes’ which form a part of the SEC’s ‘New rules and amendments to the principles and regulations of the Commission’. These were thanks to be implemented by the top of last month.