Nigeria yet to tap huge mutual funds potential – Utomi

Abigail Utomi is the business head of Norrenberger Assets Management. In this interview, she speaks about mutual funds’ investments, forex exchange policies in Nigeria, and the recent dollar fund launched by the financial group. Excerpts…

What is your take on mutual funds/Eurobonds investments in Nigeria?

Investors’ interest in the mutual fund space is fast-growing in Nigeria with interests in the dollar mutual fund and Eurobonds even more visible as investors diversify away from naira assets to hedge against the risk of continuous devaluation of the naira.

The mutual fund industry has also seen some growth this year with the global mutual fund net asset value increasing by circa 5% YTD while the dollar fund subgroup grew by circa 24%, growing faster than the global mutual fund net asset value.

However, there is huge potential waiting to be tapped in this space, such as the money market, fixed income and dollar funds.

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What informed the dollar fund recently launched by Norrenberger?

The Norrenberger Dollar Fund, which main objective is to hedge against currency risk, generate income in USD and preserve investors’ capital in the short to medium term, is an open-ended collective investment scheme registered by the Securities and Exchange Commission (SEC) and is targeted toward both retail and institutional investors seeking dollar-denominated investments.

The minimum investment requirement is $500 (5 units) and multiples of $100 (1 unit) for additional investments. The fund seeks to address the need of the investing public seeking diversification from the traditional naira investments with flexibility and regular income assured.

Who are the parties to the fund?

Alongside Norrenberger Investment and Capital Management Limited (fund manager), there are four other parties to the fund. Securities and Exchange Commission acts as the regulator, Stanbic IBTC is the custodian, DLM Trust Company is the trustee to the fund, and finally, the Metropolitan Law Firm is the solicitor to the fund.

What is the competitiveness, especially with return on investment and its difference from a normal domiciliary account?

A typical domiciliary account offers ease in carrying out local and international transactions as well as access to loan facilities where applicable. Unfortunately, most domiciliary accounts offer low-interest rates on investments.

We have identified this gap and have introduced the Norrenberger Dollar Fund as a solution to enable investors to access all the benefits of the fund with very little entry amount.

The benchmark for the Norrenberger Dollar Fund is the yield on a 5-year Nigeria Eurobond and the fund manager will continue to strive to outperform this benchmark.

What is the safety of investor capital and guarantee for dividend payments?

Norrenberger Investment and Capital Management Limited is regulated by the Securities and Exchange Commission (SEC). We also have a solid capital base and a robust risk management framework that ensures your investment is safe. Funds and instruments are held in custody by the fund custodian (Stanbic IBTC), while the trustees (DLM Trust Management Company) continue to monitor the fund administration to ensure they align with the trust deed.

These professional parties to the fund ensure necessary checks and balances that in turn assure investors of the protection of their capital. The funds’ asset allocation structure in FGN Sovereign Eurobonds, Corporate Eurobonds and Money Market USD instruments provides protection to investors’ capital as well as the liquidity of the portfolio.

The Fund pays dividends on a quarterly basis and investors can choose to reinvest by subscribing to additional units of the fund or receive payment to their domiciliary account.

Similarly, additional units for investment can be made in multiples of 1 unit at the offer price for that day without limit, investors can make an additional investment at any time as a result of the open-ended nature of the fund.

Investors can also easily liquidate their investment in part or full and liquidation will be processed within five working days. However, withdrawals before the 90 days lock-in period will attract a 20% charge on accrued income.

What do you think about forex exchange stability and how it affects such investments in Nigeria?

The dollar is one of the most demanded currencies in the world, thus, magnifying its value compared to other competing currencies due to its stability. The foreign exchange policy of the Central Bank of Nigeria (CBN) has been quite unstable thus heightening investors’ wariness of holding naira compared to other foreign currencies.

The multiple exchange rate regime has also provided an arbitrage opportunity within the system, thus, increasing the activities of speculators and profit seekers.

Restrictions around cash transfers and the need for investors to source foreign currency through the parallel market for investment purposes is a limitation that also affects the dollar mutual funds, however, market players continue to seek solutions to these identified limitations.

Where do you see Mutual Funds/Eurobonds investment in Nigeria this year being an election year?

The election year will see investors seeking the safety of funds and flexibility to make quick decisions around their capital, while some mutual funds can provide this and attract these funds, some investors would prefer to hold cash altogether rather than lock in funds for investments due to the uncertainty of the election outcome.

This may negatively impact the mutual funds industry in Q1 and Q2, however, after the election; investments will improve to desirable levels.

What can the government do to improve such investments?

The government agency regulating the mutual fund’s investment sphere in Nigeria is the Securities and Exchange Commission. Efforts to provide financial education to investors towards safeguarding them against poor decisions leading to their investing in unrealistic investment schemes that erode their capital and further deepen investors’ apathy to legitimate investment options such as mutual funds would have positive effects on the mutual funds’ Industry.

The regulator’s financial inclusion strategies should also be driven from an implementation perspective to increase the size of the banked and thus increase the size of the investing public.

What are the plans of Norrenberger to boost investors’ confidence in 2023?

We will continue to provide platforms where investors can have access to financial literacy materials and organise forums to deepen financial inclusion whilst ensuring transparency, accountability and continuous performance of all our funds in their respective categories thus providing superior returns to investors and assuring the quality of the fund’s assets.