Nigeria has established itself as the third-largest investment management hub in sub-Saharan Africa, following South Africa and Morocco, with an estimated N3.5 trillion ($7.8 billion) worth of assets under management by the end of 2022.
According to a report by Agusto & Co, this growth represents a significant 25 percent increase compared to the previous year’s figures.
The report attributes the growth to factors such as increased investor confidence due to rising yields on naira-denominated investments during the latter part of the year. Additionally, there has been growth in dollar-denominated portfolios as Nigerians seek to protect themselves against the continuous devaluation of the naira.
However, despite this positive growth and the substantial inflow of foreign exchange remittances from Nigerians in the diaspora, amounting to $20.9 billion (or N9.3 trillion) in 2022, the report highlights that the asset management industry in Nigeria continues to face challenges.
The industry’s growth is constrained by factors such as a significant informal sector, estimated to account for 65 percent of the country’s GDP, a high poverty rate of 40 percent, and limited investment opportunities within the Nigerian capital market.
The report emphasizes that the difficult operating environment in Nigeria has led to a decline in real incomes and purchasing power, resulting in investors’ increasing preference for dollar-denominated assets. The year-over-year inflation rate, which rose from 15.6 percent in January 2022 to 21.37 percent in December 2022, further reflects the unfavorable macroeconomic climate in the country.
“In addition, the parallel market exchange rate stood at N750/$ 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.