Inflation, naira crash slowing assets management growth – Report

Nigeria has emerged as the third largest investment management zone in sub-Saharan Africa, after South Africa and Morocco, with an estimated N3.5tn ($7.8bn) of assets under management as of the end of 2022.

According to a report by Agusto & Co, the growth represents a 25 per cent increase when compared to figures recorded during the preceding year.

The report said the growth was driven in part by increased investor confidence following the gradual rise in the yields offered on naira-denominated investments during the latter half of the year and growth in dollar-denominated portfolios as discerning Nigerians hedge against the persistent devaluation of the naira.

Despite this growth and the high foreign exchange remittance inflows from Nigerians living in the Diaspora ($20.9bn or N9.3tn in 2022), the report noted that the asset management industry in the country has continued to underachieve.

It said the Industry’s growth remains constrained by a large informal sector (estimated at 65 per cent of GDP), a high poverty rate of 40 per cent and limited investment opportunities offered by the Nigerian capital market.

The report read in part, “The challenging operating environment in Nigeria has led to an erosion of real incomes and purchasing power, prompting a surge in investors’ inclination towards dollar-denominated assets. The escalation of the year-over-year inflation rate from 15.6 per cent in January 2022 to 21.37 per cent in December 2022 is indicative of an unfavourable macroeconomic climate. 

“In addition, the parallel market exchange rate stood at N750/$ as of 31 December 2022, indicating a 63 per cent arbitrage from the official market rate and a 32 per cent depreciation from N570/$ recorded in the corresponding period of the prior year. Naira-denominated investments have lost their lustre in light of current market conditions, and investors are instead looking to high-yield alternatives and FCY- denominated investments.”

According to the report, in 2022, segregated portfolios accounted for more than half of total managed assets (52 per cent), which amounted to N1.76tn as of December 31, 20225 – 40.2 per cent higher than in 2021.

Segregated portfolios include privately managed discretionary and non-discretionary client funds as well as other private collective investment schemes. They provide investment options that are tailored to the unique risk profiles and investment objectives of individual clients.

Collective investment schemes, on the other hand, accounted for 42 per cent (N1.37tn) of AuM in 2022, while alternative assets – comprising publicly-listed private equity and infrastructure funds – accounted for the remaining 6 per cent (N345bn) of the asset management industry’s managed assets as at the same date.

The report added that investors have shown a growing inclination towards privately managed portfolios rather than the often more restrictive and conservative collective investment schemes, as they seek to gain relatively higher yields from investments.

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