Information available from the most recently released NAV Summary Report by the Securities and Exchange Commission (SEC) indicated the absence of Cordros Milestone fund 2028.
As I usually do, I reached out to the Commission to alert them of the “seeming mistake”, however, I was told in response that the Cordros Milestone 2023 and Cordros Milestone 2028 had been merged into one fund, called Cordros Milestone (balanced) fund. To get to know more about the merger, I followed up with the fund management company.
In an email exchange with the acting managing director of Cordros Asset Management Ltd, Mr. Adegbolahan Aina, who confirmed the merger, it was indicated that the merger took place after “getting the consent of the unitholders and subsequent approval by the Security and Exchange Commission”.
Advantages of the merger: The Acting managing director fund said that expected benefits of the merger include:
- Cost optimization by way of lower expense ratio which will in turn impact the performance of the now merged fund.
- Improved return on asset (ROA) arising from expected economies of scale.
- Resource Consolidation from the fact that the fund manager’s time will now be focused on one fund instead of two, a situation that is expected to improve returns.
Is Mutual Fund merge a new phenomenon?
Merging of mutual funds may be new in Nigeria, but it is not a new phenomenon in more advanced countries. In India, for example, more than 20 mutual funds merged in 2018 alone.
What happens when funds merge?
When funds merge, one of them survives while the other is swallowed up by the surviving fund. In the case of Cordros Milestone fund, the surviving fund is the Cordros Milestone fund 2023, although the name of the merged fund is simply Cordros Milestone Fund. From our analysis, unit holders of the then Cordros Milestone fund 2028, should receive 1.205 units of Cordros Milestone fund, to ensure that they maintain their proportionate unit holding before the merger. Therefore, unit holders of Cordros Milestone Fund 2028 should ensure that they do not receive a 1 for 1 unit, because they would lose out if that happens.
Effect on Unit Holders
When mutual funds merge, unit holders get affected either adversely or beneficially, depending on the similarities that exist between the merged funds. However, in the case of Cordros Milestone funds, unit holders may not be affected beyond the advantages already noted above by the acting managing director of the funds. This is because the two funds that are now merged are very similar in all respect. The investment objectives, the investment strategy, the management fees and even the risk characteristics are so similar that the merger may not affect unit holders’ realization of their investment objectives and risk profile.
Conclusion: Because of the similarities of these two funds, it does look like mutual fund mergers are a nonevent, but actually, they are events that unit holders should pay particular attention to when funds that are dissimilar are merged. Therefore, I will do an article on what to consider when mutual funds merge, in my next article.