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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
Nigerian Mutual Fund Managers Transparency Report 2017
Innocent Unah +234 810 639 5676 innocent.unah@businessdayonline.com Sandra Okougbegun +234 909 564 9198 okougbegun.sandra@businessdayonline.com
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
BusinessDay Research & Intelligence Unit (BRIU) is a Strategic Business Unit (SBU) within the BusinessDay Group, publishers of Nigeria’s leading business & financial newspaper. BRIU operates as an independent department within the organisation. The Unit’s products and services comprise: • Cutting-edge business intelligence and market research studies • Industry analysis & reports • Feasibility studies & business plans • Client-specific research projects and strategic planning • Polling and surveys covering industries and business segments Our areas of focus include market and industry research, data mining, and economic and financial analysis. BRIU seeks to provide you with rare insights from our robust economic forecasting models and analytics. We serve clients from such diverse corporate sectors as banking, insurance, financial services, manufacturing, healthcare, ICT. BRIU also consults for state and federal government ministries, agencies and departments. Our team of research analysts is committed to providing you with the latest insights and perceptions on current trends and developments in your sector, and providing you with intelligence on the Nigerian and global economies.
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Š BRIU, 2017 6, Point Road, G.R.A., Apapa, Lagos www.businessdayonline.com email: research@businessdayonline.com
This document has been prepared in good faith on the basis of information available at the date of publication. BusinessDay Research & Intelligence Unit (BRIU) does not warrant the accuracy, reliability or completeness of the information in this report for the purpose of making any investment decision. Readers are advised to assess the relevance and accuracy of the content of this publication against the limitations noted herein.
The opinions/conclusions and suggestions in this report do not represent investment or other advice and should therefore not be construed as such. This publication is a copyright. Apart from any use as permitted under Copyright Act 1968, Nigeria, no part contained herein may be reproduced, copied or duplicated in any form without prior written consent of BRIU.
BRIU will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.
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Contents Page Highlights 6-7 Objective 8 Background 8 Mutual Funds Types and Benefits 9 Types of Mutual Funds 9 Benefits of Mutual Funds 9-10 The Need for Transparency
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Transparency Rating Criteria and Methodology 12-13 Presentation and Interpretation of Results
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Addendum On Findings 19 Limitations 19 Conclusion
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Recommendations
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
HIGHLIGHTS FUND MANAGERS in Nigeria lack full transparency as there is no formal requirement for them to provide detailed and current information on their mutual funds to investors. Even though there is no regulatory requirement for full disclosure of their fund activities to the investing public, it is increasingly imperative that existing and prospective investors be provided with detailed and current information concerning the mutual funds, so that they will be able to fully assess the expected returns and the attendant risks inherent in their investment in any of the funds. Comprehensive and timely information will also allow them to evaluate their portfolio performance whenever they choose to.
Comprehensive and timely information will also allow investors to evaluate their portfolio performance whenever they choose to.
We understand that the fund managers do make information on these funds available on request, but this often happens after they might have convinced many to invest in their mutual funds, with benefits that only they know, as these cannot be subjected to independent verification. This has fuelled speculations that asset managers might be making fat profits from underperforming funds: a fund that has a high expense ratio
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may have lower return relative to a similar fund that has higher return. There has therefore been a strident call for a paradigm from the current regime of opacity by fund managers, to one of transparency. This report sets out to ascertain the transparency level of Nigerian mutual fund managers, by evaluating the nature and extent of information disclosed by each of them on the mutual funds they manage. To do this, we checked the websites of the fund managers as the primary source of information, with the expectation of obtaining the expense ratios, the fund fees, and other information. We expected to obtain comprehensive fact sheets of the various funds for the information. With little information on the websites of most of the fund managers, we sent e-mails and made calls to them. However, while just half of them responded by telling us to give them up to 48 hours to supply us with the information we required, the other half did not respond, and only Investment One Funds Asset Management Ltd responded with information on their mutual funds. www.businessdayonline.com
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
Our findings show that the top seven (7) transparent fund managers, in the order of their ranking, are FBN Capital Asset Management Ltd, AXA Mansard Investment Ltd, Vetiva Fund Managers Ltd, ARM Investment Managers Ltd, and Lotus Capital Ltd. These were followed by First City Asset Management Ltd and Stanbic IBTC Asset Management Ltd. The fund managers that ranked the same and also the least are Alternative Capital Partners Ltd, Afrinvest Asset Management Ltd, Chapelhill Denham Management Ltd, Cordros Asset Management Ltd, FSDH Asset Management Ltd, Greenwich Asset Management Ltd, PAC Asset Management Ltd, SCM Capital Ltd, SFS Capital Nigeria Ltd and Zenith Asset Management Ltd. These fund managers ranked 12th on our transparency scale, having garnered a transparency level of only 38 per cent. The only fund manager with information on expense ratio on its website is the Vetiva Fund Managers Ltd. The fund managers with 2017 fund fact sheet are FBN Capital Asset Management Ltd (with fact sheet as at October 9, 2017), Investment BUSINESSDAY RESEARCH & INTELLIGENCE UNIT
One Funds Asset Management Ltd (with fact sheet for the third quarter of 2017), and Lotus Capital Ltd (with fact sheet as at September 30, 2017). First City Asset Management Ltd, ARM Investment Managers Ltd and Vetiva Fund Managers Ltd have fund fact sheet as at July 2017. The most transparent of all the mutual funds are the bond funds, with a transparency level of 57.50 per cent. They are followed by ethical funds and equity funds, which have transparency levels 51.60 per cent and 51.33 per cent. Mixed funds, money market funds, and fixed income funds have transparency levels of 47.46 per cent, 47.15 per cent, and 44.70 per cent respectively. We recommend that fund managers should provide monthly funds fact sheet with pertinent information for investors on their website at all times. The Nigerian Securities and Exchange Commission (SEC) and the Fund Managers Association of Nigeria (FMAN) should also entrench the practice of full disclosure of information in the mutual funds industry as this will engender transparency among fund managers.
We recommend that fund managers should provide monthly funds fact sheet with pertinent information for investors on their website at all times. www.businessdayonline.com
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
OBJECTIVE The objective of this report is to evaluate fund managers transparency level in Nigeria and specifically to ascertain information disclosed by fund managers on all the mutual funds they manage.
BACKGROUND One of the most important mechanisms for investor protection in any financial market is the provision of vital and up-to-date information to investors. But not all fund managers in Nigeria provide recent facts on the funds they manage. Also, FMAN and SEC seem not to emphasise, at the moment, transparency by fund managers. This is against the practice of other investment associations and regulators in other countries. In the UK for example, the Association of Investment Companies (AIC) encourages member firms to provide sufficient information for investors to make decisions. In an ideal investment world, investors ought to be properly informed in a stress-free manner: complete data on the various costs involved in an investment, current perfor-
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mance in terms of returns, on the fund managers website. Rather than wait for the investors to request for information, Nigerian fund managers should give investors all the information they need upfront. Since information provided only on high level returns data are becoming less important for investors’ use in decision-making. Some investors chose mutual funds, which have diversification benefits and relatively low volatility as their preferred investment vehicles. Mutual funds also tend to involve less transaction cost and other fees. Nevertheless, it is still possible for an individual to invest in these funds at huge fees without knowing it; this gives rise to a transparency issue as such fees can reduce their real returns.
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MUTUAL FUNDS TYPES AND BENEFITS A MUTUAL FUND is a professionally managed investment vehicle that comprises a pool of moneys from many investors. Mutual funds typically invest in securities such as stocks, bonds and money market securities. Sometimes, it invests in a combination of these securities, as well as other cash alternatives.
Types of Mutual Funds
equivalent assets. Fixed income funds: They invest in assets that pay a fixed rate of return and aim to have money coming into the fund on a regular basis, mostly through the interest earned. Ethical Funds: These mutual funds invest only in securities of firms that meet certain social and ethical standards.
This research focuses on six types of mutual funds currently managed in Nigeria: equity funds, money market funds, bond funds, mixed funds, ethical funds and fixed income funds.
Bond Funds: These funds invest in bonds and other debt securities. Most bond funds comprise of corporate and government bonds with varying maturity dates.
Equity Funds: Equity funds invest in stocks of companies from various sectors. They usually aim to grow faster than money market or fixed income funds.
Mixed Funds: Mixed funds (also known as balanced funds) aim to provide growth and income opportunities to investors at reduced risk. They typically invest in a mixture of equities, bonds and other fixed income instruments.
Money Market Funds: These funds invest in short-term fixed income securities such as government bonds, treasury bills, certificate of deposits, etc. The purpose is usually to enable investors put their moneys in easily-accessible and cash-
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Benefits of Mutual Funds There are various benefits of investing in mutual funds and we explain a few of them below.
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
Diversification: Diversification involves the mixture of investments within a portfolio and it’s used to manage risk. Mutual funds can invest in dozens, hundreds and thousands of different investment securities, making diversification possible by investing in just one fund. Accessibility: Mutual funds are easy to buy; even beginning investors can easily open an account within minutes. Professional management: Mutual funds have professionals who manage such funds by also researching and analysing investments, so
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investors don’t have to. These professional have the skills, desire and patience required to do their job well in any professional pursuit. Mutual funds enable investors to do a lot with their life rather than spending time and energy on investment matters. Hence when buying a mutual fund, you are also choosing a professional money manager. Liquidity: One of the advantages of mutual funds is that assets are liquid. Liquidity simply refers to converting your assets to cash with relative ease. For mutual funds, an investor can convert asset to cash by quickly selling it to another investor.
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
THE NEED FOR TRANSPARENCY “Transparency people talk a lot about, it’s a goal everybody ascribes to but when push comes to shove, very few people actually adhere to it.” - Keith Rabois
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
TRANSPARENCY is a pertinent issue in the Nigerian fund management industry. Investors should be provided with detailed and current information concerning mutual funds so that they can properly evaluate the risk and return characteristics of the funds they invest in (or intend to invest in), and also be able to monitor their portfolio on an on-going basis. A huge level of transparency will help to prevent uncertainty which will prevent fear and panic on the part of investors as to making investment decision. This also helps to prevent exposure to unnecessary and unavoidable risk. Providing all the information investors need, will help fund managers build trust, develop a better rapport with investors and also reduce the number of request for additional analysis which will help save time and resources. One of the ways fund managers can build trust is if they put the need of investors at a higher level than their personal gains.
TRANSPARENCY RATING CRITERIA AND METHODOLOGY We assessed fund managers’ transparency based on the nature and level of information provided or not provided, focusing on the following criteria: BUSINESSDAY RESEARCH & INTELLIGENCE UNIT
• Information available on company’s website/online: This criterion is based on the availability of information on the company ’s website or online. We assigned 33 points weight for information available on a company’s website. • Currency of information: This criterion refers to how recent the information a fund manager’s website/online is. It also assesses how current a manager’s fund fact sheet is. We assigned the following weight to the criterion: • This month and within 1 month – 10 points • Within 3 months – 6 points • Within 6 months but more than 3 months – 3 points • Within 12 months but more than 6 months – 2 points • More than 12 months – 1 point • Fund returns: This criterion evaluates whether or not information is available on fund return. A fund with returns information scores 5 points; a fund with no information attracts no score. • Expense ratio: A fund with information on its expense ratio scores 15 points, while a fund www.businessdayonline.com
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with no information scores zero point. • Fund fees: Fund fees information has a weight of 15 points. Hence, a fund with no information on fees scores zero. • Fund fact sheet: Funds fact sheet availability scores maximum points of 10 points, while no score is given to funds without a fact sheet.
PRESENTATION AND INTERPRETATION OF RESULTS Information provided by fund managers based on the criteria Criteria
Proportion of Managers (%)
Fund Returns
86.57
Expense Ratio
5.97
Fund Fees
25.37
Fund Fact Sheet
44.78
Currency Of Information
20.90
Availability of Information on Website
40.30
The table above shows that, 58 mutual funds, representing 86.57 per cent of the mutual funds registered with SEC as at the week ended October 27 2017, has information on returns. Only 5.97 per cent of the mutual funds provide information on fund’s expense ratio (funds expenses as a proportion of their value). The only fund managers that provide information on expense ratio are Vetiva Fund Managers Ltd’s (DV Balanced Fund) and Investment One Funds Managers Ltd ( Vantage Guaranteed Income Fund, Vantage Balanced Fund, and Abacus Money Market Fund). Furthermore, just 25.37 per cent of the mutual funds have information on fees, while 44.78 per cent provides fact sheet.
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NIGERIAN MUTUAL FUND MANAGERS TRANSPARENCY REPORT 2017
Fund managers with most recent fund fact sheet
Funds Managers’ Transparency Chart
Fund Managers
Date of Fact Sheet
Fund Managers
Transparency Score (Points)
Rank
FBN Capital Asset Management Ltd
October 9, 2017
FBN Capital
73.00
1st
Investment One Funds Management Ltd Third Quarter 2017
Axa Mansard
69.00
2nd
Lotus Capital Ltd
September 30 2017
Vetiva
66.00
3rd
First City Asset Management Ltd
July 31 2017
ARM
62.25
4th
ARM Investment Managers Ltd
July 31 2017
Lotus Capital
54.00
5th
Vetiva Fund Managers Ltd
June 31 2017
FCAM
52.00
6th
Stanbic IBTC
51.86
7th
Meristem
51.00
8th
Investment One Fund
40.25
9th
United Capital
40.00
10th
AIICO Capital
39.00
11th
ACAP
38.00
12th
Arinvest
38.00
12th
Chapelhill Denham
38.00
12th
Cordros
38.00
12th
FSDH
38.00
12th
Greenwich
38.00
12th
PACAM
38.00
12th
SCM Capital
38.00
12th
SFS Capital
38.00
12th
Zenith
38.00
12th
Source: BRIU
From table, we can see that the fund manager with the most recent fund fact sheet is FBN Capital Asset Management Ltd with a fund fact sheet as at October 9 2017. Investment One and Lotus Capital Ltd have the next most recent fact sheet to FBN Capital; Investment One’s Fund fact sheet was for the third quarter of 2017 (Q3 2017); Lotus Capital’s fund fact sheet was for September 30 2017. First City Asset Management Ltd, ARM Investment Managers Ltd, and Vetiva Fund Managers Ltd all have their funds fact sheets for July 31 2017.
Source: BRIU
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FBN Capital Asset Management Ltd FBN Capital Asset Management Ltd topped our transparency chart, having scored 73 points ahead of other fund managers. FBN has the most recent fund fact sheet; all their funds provide information on returns and management fees but none on expense ratio. AXA Mansard Investment Ltd AXA Mansard Investment Ltd has a transparency level of 69 on our 100 point scale, placing them 2nd behind FBN. This fund manager has two mutual funds, the money market fund and equity fund, both of which provide information on returns and management fees. The funds also have fact sheets on the manager’s website. Vetiva Fund Managers Ltd Vetiva Fund Managers Ltd’s DV balanced fund ranked 3rd with a transparency level of 66. The DV balanced fund provides information on returns and expense ratio with a fund fact sheet dated July 2017. This is the only mutual fund manager; in addition that has information on expense ratio on its website. Arm Management Co. Ltd The Asset and Resource Management Company Ltd (ARM) has four mutual funds comprising the aggressive growth fund, money market fund, ethical fund and discovery fund. The aggressive growth fund, the ethical fund, and the discovery funds all have transparency score of 66 points, while the money market fund has a transparency score 51 points. The three funds with transparency score of 66 points provide information on their management fees, with fact sheet dated July 31 2017; the money market fund provides information on just returns and has a fact sheet for July 31 2017. None of the funds provide information on the expense ratio. Overall, ARM has a transparency level of 62.25 on our transparency scale and is ranked 4th on our transparency index. Lotus Capital Ltd With a transparency score of 54 points, Lotus Capital Ltd ranks 5th on our transparency chart. The lotus capital fixed income fund and the lotus halal investment fund each has a fact sheet as at September 2017 with informaBUSINESSDAY RESEARCH & INTELLIGENCE UNIT
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tion on returns and fees. First City Asset Management Ltd (FCAM) FCAM Ltd has a transparency score of 52 points. The equity and short maturity fund provides information on returns and has a fund fact sheet as at July 31, 2017. Stanbic Ibtc Asset Management Ltd Stanbic IBTC Asset Management Ltd has a transparency level of 51.86 points and is ranked 7th on our transparency chart. Stanbic IBTC mutual funds have fact sheets as at the fourth quarter of 2016. All Stanbic mutual funds have 50 points transparency score, except the money market fund that has transparency score of 65 points, being the only fund that provides information on fees. Meristem Wealth Management Ltd: Meristem Wealth Management Ltd provides 38 points information on its equity fund and 64 points information on its money market fund. The money market fund has a fact sheet with information on returns and management fee. The equity fund provides information only on returns. On the whole, Meristem has a score of 51 points and ranks 8th on our transparency chart. Investment One Funds Management Ltd Investment One Funds Management Ltd’s mutual funds: abacus money market fund, vantage balanced fund, and vantage guaranteed income fund, provide information on fund returns, fees and expense ratio. Apart from the kedari investment fund (KIF) that provides information only on returns; all its funds have fact sheets. With a transparency score of 40.25 points, Investment one ranks 9th on our transparency chart. United Capital Asset Management Ltd United Capital Asset Management Ltd ranked 10th on our transparency chart, having earned just 40 points transparency score. All the mutual funds of United Capital provide information on returns except the Wealth for Women Fund with information only on fees. The funds have no information on expense ratio and no fact sheet.
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Source: BRIU
AIICO Capital Ltd AIICO Capital Ltd provides 39 points score of information on its money market fund; it has a fact sheet as at September 2014 and has information only on returns. AIICO Capital ranks 11th on our transparency chart. Afrinvest Asset Management Ltd Afrinvest Asset Management Ltd has transparency score of 38 points and ranks 12th on our transparency chart. Both the equity fund and the Nigeria International Debt Fund provide information on returns and none on fees, expense ratio. They also do not have fact any fact sheet. Alternative Capital Partners Ltd This fund manager has two mutual funds and provides just 38 points information on both funds. ACAP Canary Growth Fund and ACAP Income Fund provide information on just returns; they have no fact sheets. Chapelhill Denham Management Ltd Chapehill Denham Management Ltd has a transparency level of 38 points and provides information on just the returns of its Paramount Equity Fund, BUSINESSDAY RESEARCH & INTELLIGENCE UNIT
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Money Market Fund and the Women Investment Fund. The funds do not have fact sheet and provide no information on expense ratio and fees. Cordros Asset Management Ltd Cordros Asset Management Ltd also provides 38 per cent information on the Cordros Money Market Fund, with information only on returns. It provides no information on its expense ratio and fees, and has no fact sheet. FSDH Asset Management Ltd FSDH Asset Management Ltd has a transparency score of 38 points. Its Coral Income and Coral Growth Funds provide information on just returns. Greenwich Asset Management Ltd Greenwich Asset Management Ltd provides information only on returns and has a transparency level of 38 points. PAC Asset Management Ltd The PACAM Money Market Fund, fixed income fund and balanced fund provide information on just returns. None of the funds has a fact sheet. The firm achieved 38 points transparency score. SCM Capital Ltd SCM Capital Ltd Frontier Fund provides information only on returns. The fund manager ranks 12th on our transparency chart, the same rank with the other fund managers that also reached just 38 points on the transparency chart. The fund provides information only on returns and has no fund fact sheet. SFS Capital Nigeria Ltd SFS Capital Nigeria Ltd provides 38 points level of information on its only managed fund, the SFS Fixed Income Fund and ranks 12th on our transparency chart. The SFS fixed income only provides information on the fund’s return but none on fees and expense ratio and it has no fund fact sheet. Zenith Asset Management Ltd Zenith Asset Management Ltd also ranks 12th on our transparency chart since it reached transparency level of just 38 points. The income fund, equity fund, and ethical fund have no fund fact sheet and provide information only on returns. BUSINESSDAY RESEARCH & INTELLIGENCE UNIT
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ADDENDUM ON FINDINGS •
The fund managers that ranked the same and also the least (12th) are Alternative Capital Partners Ltd, Afrinvest Asset Management Ltd, Chapelhill Denham Management Ltd, Cordros Asset Management Ltd, FSDH Asset Management Ltd, Greenwich Asset Management Ltd, PAC Asset Management Ltd, SCM Capital Ltd, SFS Capital Nigeria Ltd, and Zenith Asset Management Ltd. They all reached transparency level of just 38 per cent.
•
The only fund manager with information on expense ratio on its website is Vetiva Fund Managers Ltd.
•
The fund managers with 2017 fund fact sheet are FBN Capital Asset Management Ltd with fact sheet as at October 9 2017, Investment One
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Funds Asset Management Ltd with fact sheet for Q3 2017, and Lotus Capital Ltd with fact sheet as at September 30 2017. First City Asset Management Ltd, ARM Investment Managers Ltd, and Vetiva Fund Managers Ltd all have fund fact sheet as at July 2017. •
The most transparent mutual funds are the bond funds that have transparency score of 57.50 points. It is followed by ethical funds with 51.60 points transparency score, equity funds with 51.33 points transparency score, and mixed funds with 47.46 points transparency score. The money market funds and fixed income funds have 47.15 points and 44.70 points score on the transparency scale.
•
Only 44.78 per cent of the mutual funds have fact sheets.
LIMITATIONS We sent emails to the fund managers that had little information about their mutual funds on their websites. However, only 50 per cent responded to our mails requesting extended time to provide information. But as at the time of concluding this report, only Investment One Funds Asset Management Ltd had responded with information on its mutual funds, leaving us with information we could obtain online, and the information on fund managers’ website. www.businessdayonline.com
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CONCLUSION This report has shown that most fund managers in Nigeria do not give full disclosure on their mutual funds. For this reason, the importance of transparency in the Nigerian mutual funds industry should be emphasised by not just the regulatory bodies and industry associations such as the FMAN, but also by investors and financial advisers; this, in our opinion, will promote best practices among the fund managers. Mutual fund transparency is critical as it allows investors and other stakeholders to make fact-based decisions. In addition, it allows investors to properly assess the risk they expose themselves to when they decide to invest in mutual funds. Being more transparent will also help the fund managers to build and sustain the trust of their clients
RECOMMENDATIONS 1.
The Securities and Exchange Commission (SEC) and the Fund Managers Associations of Nigeria (FMAN) should encourage greater transparency by Nigerian fund managers, by requiring them to disclose on their websites, detailed and current information that will enable investors make better investment decisions.
2.
Even without any regulatory pronouncement, fund managers should provide detailed and current information on mutual funds. From the research findings, not all mutual funds have fact sheets while some are not updated, a situation that impedes investor’s ability to correctly assess the managers’ fund management ability in terms of expected returns vis-à-vis the associated costs.
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