According to William Mensah, Executive Director in charge of retail and wealth management at Bora Capital Advisors, lowering the cost of operating Collective Investment Schemes in the nation by reducing management and administrative fees will enable the industry’s growth and have a larger impact on the economy.
Collective Investment Schemes (CIS) are the traditional method for directing retail investors’ funds into the capital markets, but the costs of maintaining the vehicle have impeded the sector’s planned expansion.
Following the introduction of Bora Fixed Income Unit Trust and Balanced Unit Trust, Mr. Mensah spoke with B&FT about how costs affect the profits investors anticipate from their investments.
“Cost is one of the things that take away from a return. Any expense that the Fund incurs is going to be charged against the Fund, which is going to reduce returns the investor is receiving,” he said.
Highlighting the strategy adopted by the Bora Capital Advisors, the Market Analyst said the management fee applied remains the lowest investors can get on the market.
“Right from the beginning, we are saying with our management fee that we are coming in at one of the lowest you can find in the market at 1.25 percent. Then besides that, we are ensuring all other administrative expenses will not exceed 1 percent. So, our target is to ensure that the total expense ratio won’t exceed 2.5 percent at any time,” he said.
By contrast, the prevailing industry-wide range of management fees alone for CIS is between 2 and 2.5 percent, with an additional 1 to 1.5 in administrative fees amounting to as high as 4 percent.
Explaining why his outfit opted to bring Unit Trust products to the market as opposed to the better-known Mutual Funds, he stated that it is consistent with Bora Capital’s ethos of providing enhanced oversight of its offerings at the lowest price possible.
“Mutual funds remain excellent tools; however, by opting for Unit Trusts we will be subjected to more active and rigorous oversight by our Trustees – and without the need for a separate Board, we can keep the fees and overall cost down,” he explained.
Mr. Mensah also highlighted transparency as another key requirement to grow the CIS market. This, he said, is especially necessary following the investing public’s erosion of confidence due to developments in the financial sector over the past half-decade.
“In addition to reducing the cost, much emphasis must be placed on transparency. We are striving to provide as much information about our investment philosophy and decisions as possible, and also as much disclosure as possible on the state of affairs,” he noted.
Regulator’s take
In a similar vein, Director-General of the Securities and Exchange Commission (SEC), Daniel Ogbarmey-Tetteh, in a speech read on his behalf by his deputy Paul Ababio said the regulator remains committed to positioning CIS as the default investment vehicle for regular retail investors.
He added that the industry is expected to expand faster, as fund managers are continuing to place emphasis on structured schemes which give transparency in the asset management space.
“With the growth of collective investment schemes, we will continue to witness a decline in single entity exposure; and this will boost our efforts to build a robust and sustainable market to accelerate the growth of Ghana’s economy,” he said.
The regulator commended Bora Capital, and by extension other fund managers, for expanding the number of products available to the investing public.
“With the growth of product offerings, investors can say these are the products and their respective characteristics; and here is how we choose this product versus that product… we have come a long way, as I have had a hard time in the past explaining to regulators from other jurisdictions that we had more fund managers than products. Thankfully, we are seeing a reversal of this trend,” he remarked.
Growth
The nation’s Asset Management industry has experienced significant growth over the past decade, with cumulative Assets Under Management (AUM) rising from GH¢2.17billion in 2017, to GH¢7.78billion as of June 2022.
By the end of June 2022, there were 80 mutual funds and unit trusts, up from 53 at the beginning of the period.
Retail clients are now able to indirectly participate in investment instruments, such as long-term investments, that were previously beyond of their price range because to the collective investment schemes’ comparatively low investment minimums.
With a compound annual growth rate (CAGR) of 51%, the value of collective investment schemes climbed from roughly GH0.7 billion in 2015 to GH3.8 billion in 2019.
As of August 2022, the market’s estimated value is GHC 7.07 billion.