FCMB Asset Management is set to make history in Nigeria by launching the country’s first private credit fund, aiming to raise approximately N100 billion (around $63 million) over the next year. This initiative is particularly focused on providing financial support to medium-scale enterprises that often struggle to secure funding through traditional banking channels.
The fund, which is currently in the process of raising its first tranche of N10 billion, will offer loans to medium-sized businesses at an interest rate below the current average of 28.67% for bank loans. James Ilori,
The Managing Director of FCMB Asset Management, emphasized the fund’s potential to deliver better returns for pension fund administrators (PFAs) and institutional investors compared to conventional government securities.
Ilori pointed out that many PFAs in Nigeria have underperformed in terms of returns relative to the inflation rate, which stands at a staggering 33.95%. “If you expect interest rates to fall, you are better off locking in long-term instruments that will provide stable returns over the next 10 years rather than investing in volatile short-term instruments,” he stated.
The rationale behind targeting mid-sized firms stems from their significant contribution to the economy. These businesses, generating annual revenues between N15 billion and N1.5 trillion, often find themselves in a funding gap.
While small companies can access micro-finance institutions and larger corporations can secure loans from banks, mid-sized enterprises frequently struggle to obtain the necessary capital to grow and thrive.
A private credit fund provides loans or other forms of credit to businesses, typically in the form of non-publicly traded debt. Managed by investment companies, these funds serve as an alternative to traditional bank financing.
The income generated from interest payments, along with potential capital appreciation, makes private credit funds an attractive investment option for institutional investors, including insurance companies and pension funds.
The FCMB Asset Management fund will have a lifespan of 10 years, with returns benchmarked against the yield of the 10-year Federal Government of Nigeria (FGN) bond plus 3%. TLG Capital, a UK-based firm, will partner with FCMB to provide technical assistance in managing the fund.
The need for alternative investment options is underscored by recent data from the National Pension Commission, which revealed that 63.27% of Nigeria’s N20.48 trillion pension assets are currently invested in government securities. However, the returns on these assets have been disappointing, with a reported 22.2% return that fails to keep pace with inflation.
This situation has led to a decline in the value of pension assets, which plummeted by 38.4% in USD terms over the past year, from $22.2 billion in June 2023 to $13.7 billion in June 2024. As a result, the proposed private credit fund could offer a viable solution for PFAs seeking to enhance their returns and mitigate risks associated with government securities.
FCMB Asset Management’s initiative to launch Nigeria’s first private credit fund represents a significant step toward addressing the funding challenges faced by mid-sized enterprises in the country.
By providing an alternative investment vehicle for pension funds and institutional investors, this fund not only aims to generate better returns but also supports the growth of a vital segment of the Nigerian economy. As the financial landscape evolves, such innovative solutions will be crucial in fostering economic resilience and sustainable development in Nigeria.
