As an epilogue to my earlier article on understanding the 2019 asset management crises in Ghana, I’ve decided to share the opportunities that exist for asset management companies and the industry as a whole to enable players within the industry position themselves to unleash hidden value.
The nascent asset management industry in Ghana is very linear with clearly defined revenue streams and formidable vertical competitors (Commercial Banks & Fintech’s). Also, the low level of publicity and public education about the differences in commercial banking products (such as fixed deposits & savings account) and investment banking products (such as mutual funds & managed funds) has contributed to the industry’s slow growth and untapped potential.
That notwithstanding, the passive approach to investing by most asset management companies, where most firms invest in only short dated Government treasuries (ignoring equities) and hold them till maturity, coupled with the lack of varied investment products or options for fund management companies has not helped either.
Below are the few opportunities I believe fund management companies can explore to take advantage of the industry and grow their asset under management.
(1). Collective Investment Schemes offer the biggest opportunity for scalability and widened margin: Collective investment schemes are pools of funds that are managed on behalf of investors by a professional money manager. The manager uses the money to buy stocks, bonds, or other securities according to specific investment objectives that have been established for the scheme. Collective Investment Schemes (CIS) are more frequently known as 'investment funds', 'mutual funds', ‘unit trust’ or simply 'funds'. CIS is predominantly a retail product and rivals with the savings account product of commercial banks. According to the Securities & Exchange Commission’s 2020 annual report the total value of CIS in the industry stood at GHS 3.14 billion. At the same time, mobile money deposits mobilised into the MTN mobile money wallet only stood at GHS 6.56 billion whiles non-interest bearing deposits held in the vault of Ecobank Ghana Limited alone stood at GHS 7.15 billion.
Value in GHS
Collective Investment Schemes
MTN Momo Deposits
EGH-Non-Interest-Bearing retail customer Deposits
Data from SEC annual report & 2020 financial statements of EGH & MTN Ghana
It is quite disturbing from the table above that the combined industry CIS value trails that of the major players in the banking and fintech space who also equally target the same clients. Ironically, these institutions pay no or minimal interest (below inflation rate) for monies held in their vault compared to the CIS product. In all I estimate the market size for the CIS product to be approximately GHS 30 billion provided the industry can tap into the mobile money space and mob up banking deposits. This can be achieved through mass education and innovative integration into the Fintech space to mobilize deposits. Also, players and SEC should step-up mass public education to instill confidence in the industry which would facilitate the flow of funds into the industry. It is a no brainier that a vibrant CIS industry will reduce the overall risk of the asset management industry.
Private Equity & Private Debt remains untapped: Ghana’s private equity market still remains underserved and fledging whiles private debt market remains interestingly nonexistent. However, for the country to develop and capital to flow into key sectors such as real estate and SME financing, the private debt and equity market will need to be developed to meet the peculiarities of these industries that cannot access conventional commercial bank funding due to their uniqueness. At the same time asset management companies can set-up department and subsidiaries to manage private equity funds to boost the revenue and address certain key market areas where commercial banks & SL companies cannot address. Currently, there exist only four main private equity firms that manages funds on behalf of limited partners (mainly Development Finance Institutions).
Private Equity Firm
Asset Under Management
$ 70 million
Mustard Capital Partners
$ 32 million
Injaro Agricultural Capital Holdings
$ 30 million
The introduction of the new pension scheme and approved NPRA allocation guideline allows pension fund managers to allocate 15% of the total asset under management into PE funds. This provision avails a total of GHS 3.9 billion worth of funds for domestic private equity companies in Ghana. Given that most private equity companies charge 2% on asset under management and 20% of profit, this potential revenue line can boost the profitability and margins of fund management companies.
Pensions remains a solid area despite low margins: The total pension assets of the country currently stands at GHS 26.29 billion representing a cumulative average growth rate of approximately 94.3% over a five (5) year period. Pension funds are expected to grow based on two key parameters (1) demographics and (2) penetration rate
1. Demographics: The current demographics of the country benefits our pension and social security scheme with a significant proportion of our pension contributors in their youthful ages. This means that the number of active pension contributors exceeds the pension dependents thereby creating a net contribution into our pension funds. This positive demography means our pension asset will continue to grow above the rate of GDP on an annualized basis.
2. Penetration Rate: Data from SSNIT indicates that out of a total number of 5,090,137 SSNIT members only 1,533,942 representing 30.05% of scheme members are active contributors to the scheme as of 31st December 2018 in our country. This indicates that active enforcement of the regulation in the distant future will spur up contribution rate which will be a big boost to the industry. Also, the data further indicates that a significant portion of our economy of approximately 30 million people are yet to be formalized. The introduction of the informal pension scheme coupled with the formalization of several sectors of the economy and overall economic growth will widen the penetration rate of pensions contributions in the country and further grow our pension funds under management.
These factors provide a great environment for the growth of pension fund assets in the distant future. Asset Management Firms that can work with Trustee Companies to propose solutions to increasing the active contributor base will be well positioned.
Based on the assessment above it is clear that the opportunities for the asset management industry in Ghana is enormous and therefore players and regulators need to work together to ensure a formidable industry that will unleash its full potential.
Great article, worthwhile to read
Thanks for sharing.