Ore Sofekun is the president of Fund Managers Association of Nigeria, FMAN, a body that promotes the operations of Fund Managers registered with the Securities and Exchange Commission in Nigeria. In this interview, Sofekun discountenances investors’ belief that there are no laws to protect investment in mutual funds. She affirmed that investing in mutual funds is more beneficial in terms of return-on-investment compared to directly investing in the market. Excerpt:
By Nkiruka Nnorom
HOW impactful will you say the role of the fund managers has been in advancing the capital market?
Most people only think of retail collective investment schemes when they think of fund managers. However, venture capital and private equity managers also manage funds and they are members of Fund Managers Association of Nigeria, FMAN. Fund managers currently manage over N320 billion in collective investment funds and over USD400 million in Infrastructure and Private Equity Funds.
So, I can say that we have made quite a bit of impact in the capital market.
How will you assess this segment (fund management) of the capital market as at today in terms of progress made so far?
Money market funds have been one of the fastest growing segments of the capital market in the past 18 months.
Collective investment scheme
We believe that as the stock market recovers, more clients will gravitate towards other mutual funds.
Fund managers are not popular among domestic retail investors. As an association, what is FMAN doing to increase patronage and acceptability among retail investors?
FMAN’s focus is to increase the availability of information about collective investment scheme. For example, FMAN is a member of the Channels Working Group of the Financial Inclusion secretariat and this working group is charged with identifying and implementing new channels through which financial instruments reach the masses in Nigeria
Interaction with retail investors reveal that they are averse to mutual funds for two main reasons, which is fear of losing their investment due to lack of enabling laws to protect them and lower return-on-investment compared to direct investment. How are you addressing theses concerns?
On the contrary, there are enabling laws that protect retail investors if they invest in a Securities and Exchange Commission, SEC, registered fund. For example, all assets in a registered fund are held in a custody account with a bank under a joint name, example, the name of the Fund, followed by the name the of the trustee to the Fund.
Also, as governed by the specific asset allocation of the Fund’s trust deed and the overarching SEC rules, the fund manager can only buy specific instruments into a collective investment scheme. The trustee to the Fund conducts quarterly meetings with the fund manager and also inspects the fund’s records on a quarterly basis. In the remote event that the Fund’s assets are mismanaged by the fund manager, the SEC has set up a National Investor Protection Fund that can provide some financial relief to the unit holders.
Regarding return on investment, investors can achieve a diversified basket of stocks at a lower cost using a Fund than trying to invest directly.
Investors need to understand the type of mutual fund that they buy. For example, in a down equity market, a fund manager who manages an equity fund will also suffer losses because the Fund’s trust deed may not allow him to sell all the stocks in the Fund.
In an actively managed Fund, the fund manager monitors the capital market daily and is quick to react to news. Usually, by the time most retail investors can react to the news, the positive or negative impact on equities would have commenced or taken full effect. Thirdly, studies have shown that trying to time the market is rarely successful. So, staying the course with a target asset allocation is best on the long run. Most fund managers will outperform a retail investor as long as we are comparing apples to apples that is comparing the same investment strategy.
FMAN recently said it is planing collaboration with the Association of Stockbroking Houses of Nigeria. Could you elaborate on the collaboration and what you intend to achieve with it?
FMAN’s collaboration with Association of Stockbroking Houses of Nigeria, ASHON, is to enable brokers educate their clients about mutual funds and also sell mutual funds to their clients.
We believe that a diversified mix of money market, fixed income and stocks is best for retail investors and there are many low initial entry mutual funds that can be used to achieve this product diversification.
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