Ijeoma Agboti-Obatoyinbo is the Managing Director of FBNQuest Funds Limited, a global investment manager with presence in four continents and across private equity, venture capital and other alternative asset classes.
In this interview with Nairametrics, she speaks on issues bothering Nigeria’s capital market and other challenges in the nation’s economy.
Enjoy the conversation.
NAIRAMETRICS: How would you appraise the performance of the Nigerian economy since the beginning of the year?
Ijeoma Agboti: Inflation has increased rapidly and steadily since the start of the year and interest rates have moved markedly upwards alongside the benchmark rate, following tightening interventions by the CBN aimed at curbing inflationary pressures. However, with headline inflation presently at 21.47% in November, real returns remain negative. In addition, against the backdrop of unpredictable upcoming elections, insecurity, currency volatility and public debt concerns, there has been only moderate economic growth over the past several quarters. Growth is likely to remain at modest levels, at least in the near term.
NAIRAMETRICS: What is your take on the investment landscape in the country?
Ijeoma Agboti: Where market challenges exist, a fresh set of opportunities naturally present themselves. Resistant sectors such as real estate present opportunities at the right pricing levels. This is also a critical time to think long-term to defend portfolios against expected short- and medium-term volatility. Sectors such as infrastructure that still require trillions of naira in steady-yield growth funding also come to mind. Both public and private companies with strong fundamentals may also be attractive right now as market dislocation may cause some enterprises to be temporarily undervalued. Corporates are likely to access funding via CPs as institutional and retail investors seek ways to increase their real return and take advantage of the soaring interest rates previously mentioned.
NAIRAMETRICS: What are the challenges faced by an investment bank in Nigeria?
Ijeoma Agboti: Presently, the key challenge from an advisory perspective is the availability of mandates. Pre-election years are characterized by a slowdown in transactional activity. That said, companies continue to seek funding options to stay afloat and focus on strategic initiatives during challenging economic times. From an investment perspective, both institutional and retail investors seek capital preservation strategies alongside an opportunistic search for yield.
NAIRAMETRICS: What are the prospects of fund management in an emerging economy like Nigeria?
Ijeoma Agboti: The prospects are strong. Macro pressures notwithstanding, thanks to the efforts of a growing financial services sector, financial literacy is on the rise with concerted efforts by managers on growth, inclusion, and risk management. Increasingly more of the Nigerian population, including the youth, is gaining access to attractive investments through various investment funds. Sophisticated investors have shown a growing appetite for diversified product offerings and a more balanced approach to asset allocation. They continue to seek guidance and advice on handling market volatility, taking advantage of strong sectors and focusing on the long term. This said manager selection remains critical – investors should focus on fund managers with proven experience, solid investment returns and the ability to adapt and innovate.
With political transition coming in the near future, and prospects for an economic turnaround, managers will have some solid investment opportunities to take advantage of if they use this time to innovate and stay connected to clients.
NAIRAMETRICS: Most portfolio managers do not consider retail investors. Instead, they target high-net-worth investors. What structures do you have in your organisation to encourage retail investors as regards mutual funds?
Ijeoma Agboti: Every investor is different – stage of life, capital needs, risk tolerance, investment preferences, existing portfolio exposure, and many other factors. We prioritize staying close to our investors and understanding their evolving needs – be they retail investors or private clients. This helps to drive the development of a broad suite of investment products to suit our client’s needs. We also aim to ensure that we make it convenient for our clients to understand their options and execute them efficiently. We achieve this with the use of digital applications both internally and externally. In summary, staying close to customers, product diversification and technology are our key drivers for encouraging retail investors.
NAIRAMETRICS: What factors do you think influence investors to come to the market or stay away from the market?
Ijeoma Agboti: In the current market, currency volatility and inflationary pressures will be critical factors. The upcoming elections are another. Bearish investors may choose to hold onto cash whilst they watch the economic landscape in the lead-up to elections and hope for a return to some level of naira stability. Inflationary considerations will also play a role given the direct impact on real returns. More opportunistic investors will see the potential to take advantage of the same factors and acquire more assets, taking a value-driven approach. Ultimately, time and prudence will see investors through the present uncertainty, and once the elections have taken place, whatever the outcome, we expect that investors will regain confidence in the market.
NAIRAMETRICS: What is your take on the investment landscape in the country amidst the COVID-19 pandemic?
Ijeoma Agboti: Interestingly, over the lockdown period, individual investors became even more curious about their portfolios and investment strategies and remained eager to seek opportunities in the market to preserve and grow their savings. Technology businesses received a significant boost as tech-enabled products and services became critical to meeting the needs of businesses and consumers over the most difficult periods of the pandemic. As a result, there were strong investment opportunities in tech and IT infrastructure. Traditional investment options took a temporary hit given the softening of market yields and returns in the public market, but this only underscored the importance of taking a long-term view and a sustainable approach to portfolio diversification. Those perspectives have hopefully remained, which is quite positive.
NAIRAMETRICS: Do you think the offshore listing embarked upon by some companies has a direct impact on the Nigerian economy?
Ijeoma Agboti: Offshore listing of Nigerian companies gives visibility to our market and economy, which is a positive thing. It also presents local investment opportunities to international investors who are more comfortable participating at arm’s length. As a country, our enterprises need capital flows, so this investment has a positive impact. That said, we need to see these listings in greater volumes before we can feel the direct impact as an economy. A few offshore listings here and there will not do the trick. Further, dual listings present a balance where our domestic capital markets can benefit as well.
NAIRAMETRICS: Has the adoption of a more flexible exchange rate policy by the Monetary Policy Committee (MPC) boosted the Nigerian capital market and the economy?
Ijeoma Agboti: I think the impact on the naira has been challenging and this, along with other factors, has impacted the economy negatively. A multiple-rate regime has led to demand and supply dynamics that have been difficult for enterprises and individuals. Allowing the naira to float freely would be a better option towards attaining stability, but would not be without its pain points. It will have to get worse before it gets better.
NAIRAMETRICS: On a year–on–year basis, the headline inflation rate in November 2022 was 21.47%. What are your projections for the end of the year and what do you think should be done by the authorities to curtail soaring inflation?
Ijeoma Agboti: Today’s further rate hike announced by the MPC was targeted at curbing headline inflation and moderating the negative real return regime that persists. Since the start of its rate hike cycle in May of this year, the committee has implemented cumulative rate hikes of 500bps in a bid to stem inflation. The magnitude of any potential further increase next year will depend on the committee’s level of confidence in the slowing rate of increase that we have observed across all inflation measures over the past two months. Alternatively, a hold stance may be adopted if the committee wishes to wait and further evaluate the impact of its multiple increases to date. New approaches will also have to be considered to restore confidence in the economy, especially as businesses, and the government itself, have begun to seek both domestic and international capital inflows.
NAIRAMETRICS: In what ways do you think the present administration of Buhari will help revive the nation’s financial market, especially on the issue of identity management and other economic drivers?
Ijeoma Agboti: As we wind down the final term of the present administration, all eyes are more focused on the next potential regime and its manifesto. Given the current state of the economy, there is both a great challenge and opportunity for the next administration to embrace. Key areas for transformation include fiscal and monetary policies, energy, infrastructure, sovereign debt and, importantly, much-needed social interventions. Identity management is essential and needs further enhancement. We cannot begin to revive our economy without a solid grasp on who and where our people are and how to serve them.