Nigeria’s pioneer private credit fund to target mid-sized firms

Bloomberg | Lagos-based FCMB Asset Management Ltd. is seeking to raise 100 billion naira (US$63 million) in Nigeria’s first private credit fund to support mid-sized firms in the West African nation.

The fund, which is raising the first tranche of 10 billion naira (US$6.3 million), is being marketed as an alternative asset class to local pension funds and other institutional investors seeking positive real returns in Nigeria. Accelerating inflation and depressed yields have resulted in losses on most local currency financial instruments.

“Pension fund administrators in Nigeria were lagging in terms of returns relative to the inflation rate,” said James Ilori, managing director of FCMB Asset Management, a subsidiary of mid-sized lender FCMB Group Plc. “If you expect interest rates to fall and you plot it, you are better off locking in long-term instruments that will give you stable returns over the next 10 years than investing in short-term instruments that are very volatile.”

Returns are benchmarked to the yield of the 10-year Nigerian local sovereign bond plus 3 percent, and the fund has a 10-year lifespan, enabling pension managers and other investors to earn positive real returns over the period, the CEO said. Nigerian pension funds have 20 trillion naira of assets under management with 63 percent of the funds invested in government securities, according to the National Pension Commission.

While inflation stood at 33.95 percent in June, a 28-year high, the nation’s central bank sold one-year naira treasury bills on August 7 at 21.9 percent resulting in negative real returns for investors in the government papers.

FCMB Asset Management, which has a 348 billion naira (US$219.24 million) portfolio, is talking to pension funds, development finance institutions and high net worth individuals to invest in the fund, according to the chief executive. The proceeds will be lent to mid-sized corporate borrowers in healthcare, information technology, agriculture, transport, logistics and clean energy, he said.

“We found that for small companies they could borrow from micro-finance institutions and large corporates could get loans from banks, but between them are the mid-sized firms generating roughly 15 billion naira (US$94.5 million) to 1.5 trillion naira (US$945 million) in revenue a year, they struggle to access funds,” Ilori said.

TLG Capital will serve as the technical partner for the fund, advising FCMB Asset Management on how to invest and manage the fund.

“This is a first of its kind fund and it targets pension funds which are overweight on government assets” Aum Thacker, investment manager at TLG Capital, said.

FCMB Assets is looking to invest in firms at an interest rate of under 28.67 percent, the current average cost of financing mid-sized firms, due to the fund’s low operating costs, according to Ilori.

A private debt fund is a welcome development in the Nigerian market, said Ijeoma Agboti-Obatoyinbo, the founder OAI Alternative Investments and former managing director of Lagos-based FBNQuest Funds. “Private debt offerings have gained popularity in recent years given the rise in both early stage and growth business owners who may not be ready to sell equity in their companies, or may find traditional bank debt too expensive or restrictive,” she said.