I recently received a couple of emails from some people who said they had fallen in love with my writings and wanted to know who the five best mutual fund management companies in Nigeria are.
That got me thinking that there could be others asking that same question either silently or to themselves. As a result, rather than respond to the emails directly, I decided to make what I would have told them available to all through this article.
The answer to this question is neither here nor there and it will be difficult to discuss exhaustively on this, however, in searching for an investment management company or mutual fund, pay attention to the following:
Regulatory Registration and Legal Compliance
All mutual fund investment companies are required to register in Nigeria, so make sure that the company you are looking to choose is dully registered. There are many Ponzi Schemes out there and the Security and Exchange Commission has been doing a good job in calling them out through circulars as soon as they are known, so pay attention to such circulars by searching the SEC website.
Not only are they required to register, fund management companies are required in Nigeria to own at least 5% of the fund they manage. While it is the role of the regulatory authorities to ensure compliance with this requirement, it does not hurt for you, the prospective investor, to ask if this condition has been met.
Also search the enforcement section of the SEC website to see if the fund management company you are interested in has been penalized or blacklisted for any legal infractions in the fast. Sadly enough, this portion of the SEC website is not currently up to date and it does not hurt to ask the commission some questions. I have on several occasions and they gladly answered.
Transparency and Reporting
It is always good that you gain some clarity into the mutual fund you invest in and that clarity is a function of how transparent the investment company is. So, in choosing a mutual fund
investment company, find out how transparent they are. You can find this information by looking through their website and finding answers to such questions as, are the fund prices on the site current, if not, how stale are such prices, when was the last time the prices were updated.
Do they have the fund factsheet readily available on the sight in a downloadable format, are the available factsheets current, if stale, how stale? What information are contained in the factsheet? Is there information on the risk profile of the fund, historical fund performance, expense ratio, any holdings information, at least top 10 holdings.
Are financial statements for the fund and the company readily available in a downloadable form on the investment management company’s website. Delay or absence of reporting can be an indication of some operational problems. Fund management companies like Stanbic IBTC, FBN Asset Management, Vetiva, Lead, FCAM Wealth Management are about the most transparent while Zenith is the least.
Company’s Stability and AUM
In choosing mutual fund investment company, attention should be paid to how stable the company has been. How long have they been in business, how many funds do they manage, what are their subsidiaries and affiliates. What is the asset under management, has it been growing or decreasing?
If the fund management company lost substantial assets in recent times, find out why because it could be a sign that those already in the funds being managed by this company are bailing out. A fund management company that attracts additional assets especially from existing fund unitholders is indicative of one that generates satisfaction for the investors.
Find out how many unitholders they have for each fund they manage because some funds may have few institutional or high net-worth individuals that the AUM may be high such that the exit of such investors may portend disaster for the company.
Employee Compensation and Turnover
Every business is as good as the people it employs. Fund management requires intellectual capacity as a lot of analysis, quantitative and qualitative goes into most asset selection, allocation and rebalancing process.
Find out the rate of employee turn over as that could indicate that your fund may be managed by less experienced fund managers. Search such places as LinkedIn and
examine the profile of the fund managers that work for your prospective fund management company.
Find out who the custodian is
Fund Management companies use custodians to help with such things as dividend collection, corporate actions, and making margin payments, if and when required. In most cases, the assets of the fund are held with a custodian.
Therefore, find out who the custodian for your management company of interest is and dig a little deeper into the reputation and service excellence of the custodian. How stable is the custodian, is it registered and well capitalized, because if the custodian happens to go bankrupt, it may impact the fund management company whose asset is in their custody. How many other management companies do they render custody services for and has there been any complaints in the past?
Business Continuity Planning and Disaster Recovery
Fire incidents are anything but common in Nigeria and other places. Those who are old enough to remember can recall what happened to the NITEL towers in Lagos or that of the Cocoa House in Ibadan.
One might say that those are history but what about recent fire incidents. In the present dispensation where terrorism, cyber or September 11 type, has become the order of the day, it becomes important that companies have solid business continuity and disaster recovery plans in place.
Business continuity refers to the ability of a fund investment management company to continue operations in the event of a business disruption while disaster recovery refers to the ability of the company to restore itself back from a disaster event to the point where it was before the disaster occurred. So, find out if your fund investment management company has any business continuity and disaster recovery plan in place because you would want to access your investment even in disaster.
Customer Services and Client Responsiveness
You would want to invest with a company that will be very responsive to your concerns and enquiries. Prompt and courteous response to verbal or written inquiries goes a long way to distinguish one company from the other.
Although this may not be as important as the other points, after all, you may not mind a less cautious account officer as long as your fund gives you so much returns, however, nose around, ask peers, and read what others are saying about investment management companies on different forums.
While the above is in no way exhaustive, it will no doubt help in selecting which mutual fund investment company to go with. Remember that this exercise is not a one off or onetime thing, you should, therefore, review and revisit the checks at least once a year with a view to deciding whether to continue investing with your chosen investment management company or to make a switch.