Understanding investment risks and returns

Building a capable and confident investment culture in Nigeria

Coronation Asset Management and Coronation Securities hosted a hybrid panel on Understanding Investment Risks and Returns in Nigeria. The panel primarily addressed the Country’s risk-averse investment culture.

Major global risk events, like the ‘dot bomb’, sub-prime and Covid-19 crises of 1998, 2008 and 2020 respectively, as well as perennial domestic risks, like interest rates, inflation and policy uncertainty had created an extremely risk-averse investment culture in Nigeria. Despite these risks, however, “properly researched, allocated and managed investments offer Nigerians the insight and tools to successfully navigate risks and achieve sustainable returns on investments,” said Mounir Bouba, Chief Investment Officer, Coronation Asset Management Limited.

The high-level panel, moderated by Funke Feyisitan, Executive Director, Coronation Merchant Bank (CMB) was addressed by Bismarck Rewane, MD, Financial Derivatives Company, Mounir Bouba, Chief Investment Officer, Coronation Asset Management and Magnus Nnoka, Chief Risk Officer, CMB. Opening and closing addresses were contributed by Aigbovbioise Aig-Imoukhuede MD/CEO, Coronation Asset Management and Jibola Odedina, CEO, Coronation Securities Limited.

The discussion kicked off with Rewane delivering an extremely well-researched presentation of the historical and current risk environment in Nigeria, the West African region and globally. Rewane highlighted the role of inflation, interest rates and currency volatility along with various, largely ineffective, policy interventions to manage these market forces.

Rewane concluded that as Nigeria continued its evolution from an artificially controlled, and therefore, imperfect market, to a more open, free-market, the Country’s ability to monitor, predict and manage risks and investments would improve. This would increase confidence in investment outcomes, growing a less risk-averse domestic investment culture.

Mounir Bouba went on to address the fundamentals necessary to managing risk and achieving market out-performing returns, or alpha, in Nigeria’s current risk and opportunity landscape.

Highlighting Coronation’s proven four-step risk management and investment process, Nnoka and Bouba emphasised the importance of research and information gathering. Understanding the market and product fundamentals are a given in today’s investment industry.

To this end, Coronation’s developed a strong Risk Management platform supported by the Cardano Group, an Anglo-Dutch advisory, risk and investment management specialist firm.

Equally as important, however, was to understand individual clients’ circumstances, life goals and risk appetite. Only the combination of extensive market, product and risk research- with deep and personal client insight- could produce the all-important ‘investment policy statement’ key to Coronation’s risk-managed investment approach.

Armed with this all-informing statement, Coronation could then construct portfolios and allocate assets meeting the specific capital availability and risk and return appetites of each client. The final step was dedicated, daily, portfolio management, executed to globally-compliant standards, and made fully transparent by regular reporting to clients.

It was this process of “market-leading research combined with proven global best investment practice built on deep customer insight that gave Coronation the competitive edge in predicting and managing risk and achieving alpha,” said Bouba.

Regarding Nigeria’s macro risk environment, Bouba spoke on Coronation’s decision to capitalise the businesses over five times more than the regulatory requirement. This ensures that “our asset management and securities businesses present Nigeria’s strongest Asset Management and Securities dealing offering.”

“All our Portfolios and Funds are above the benchmark. The Coronation Money Market Fund is currently yielding 9% net and is in the Top 3 in Nigeria out of 23.”

This was augmented by a robust and globally-partnered research team supported by experienced managers and brokers. Coronation is also one of the asset management companies leading the adoption of Global Investment Performance Standards (GIPS) in Nigeria.

When it comes to specific investment products Coronation offers a wide range, catering to different needs, risk appetites and investment horizons. From US dollar-denominated products to manage short-term currency risks to medium-term inflation management tools delivering around 14% over six months to a year.

“To structured product solutions leveraging infrastructure and real estate capable of achieving returns on investments close to 20% for customers with much longer time horizons,” explained Bouba.

“Coronation also provides world-class brokerage services that allow customers to access opportunities within the space of equities, fixed income and alternative investments, and is also a partner for primary market issuance” Bouba further explained.

Bouba concluded, saying that while risks are real in Nigeria, as they are in all markets, understanding, monitoring and professionally mitigating what are, after all, known and largely predictable – and manageable – risks are the essence of effective and safe investment.

To watch the full event, click here.