Nigerian Asset Management Industry Set to Surpass N10trn Mark by 2025 - Agusto Report

Samuel Mobolaji

The Nigerian asset management industry is expected to cross the N10 trillion benchmark by next year growing by an average of 32.4 per cent over the next two years, rating agency, Agusto & Co has said.

The rating agency, in its latest report yesterday said, the Nigerian assets management industry has over the years defied a tough macroeconomic climate to achieve impressive growth.

According to Agusto & Co, over the past five years, Assets Under Management (AuM) have risen significantly, achieving a compound annual growth rate (CAGR) of 21.9 per cent and reaching an estimated N5.9 trillion as at the end of 2023.

“This also marks a remarkable 40 per cent leap from the previous year, driven by the expansion of dollar-denominated portfolios and higher yields (particularly in the latter half of the year). This impressive growth path is even more remarkable considering the significant headwinds confronting the Industry – a deteriorating macroeconomic environment, with rising inflation and a volatile currency, shrinking real incomes and dampened overall savings. This translates to a double whammy for the Industry: less money to invest and lower returns on investments.

“Agusto & Co. forecasts an impressive average growth rate of 32.4 per cent over the next two years, propelling the Industry beyond the N10 trillion threshold by 2025. While this represents a slight deceleration from the extraordinary 45.8 per cent average growth rate of the past two years, the Industry remains on a notably robust trajectory.

“Growth is expected to be driven by higher yields, increased investments from pension fund administrators and institutional clients, and the strategic allocation of funds to international money markets as a hedge against a volatile naira. Furthermore, the anticipated growth trajectory is likely to be fuelled by the rise in infrastructure funds, segregated portfolios, and REITs (to a lesser extent).

“However, we acknowledge that a persistent decline in macroeconomic fundamentals could throw a wrench in these projections. Nonetheless, the Industry is projected to remain profitable, with pre-tax return on average equity anticipated to outperform both inflation and one-year government treasury yields,” it pointed out.

The rating agency estimates that segregated portfolios accounted for a significant 58 per cent of the Industry’s AuM, amounting to N3.4 trillion as at the end of 2023. This represents a remarkable 40 per cent increase year-on-year and marks the second consecutive year segregated portfolios have eclipsed Collective Investment Schemes (CIS) in terms of AuM share.

In comparison, CISs currently hold a smaller 34 per cent share with N2.05 trillion, while alternative assets – including publicly-listed private equity and infrastructure funds – comprised the remaining eight per cent or N458 billion of the Industry’s managed assets.

“This trend reflects investors’ growing preference for passive and alternative investments as they seek higher yields. High-net-worth individuals (HNIs) and corporations have increasingly favoured segregated portfolios, driven by their desire for specific investment vehicles such as regional Eurobond issuances, which typically offer higher returns and provide a currency hedge – an advantage that is often absent in traditional CIS options.

“Furthermore, the Industry is witnessing a broader transformation. Numerous asset managers are now embracing technology to streamline operations and increase penetration. And while still in its nascent stages, we are also witnessing a growing emphasis on Environmental, Social, and Governance (ESG) considerations, particularly among foreign-owned asset managers, who are progressively integrating these factors into their strategic frameworks. This shift highlights the Industry’s agility in adapting to evolving investor preferences and a dynamic regulatory landscape,”it disclosed.