FCMB Asset Management is set to raise about N100 billion (~$63 million) over the next one year as it pioneers Nigeria’s first private credit fund.
The fund which is in the process of raising the first tranche of N10 billion is targeted towards medium-scale enterprises in Nigeria.
According to the Managing Director of FCMB Asset Management, James Ilori, the fund will invest in these firms at an interest rate under 28.67%, which is currently the average interest rate of bank loans for medium-sized companies.
The fund is also being marketed to pension fund administrators and institutional investors in Nigeria as an alternative to government securities. Speaking to Bloomberg, James Ilori argued for the fund’s ability to produce better returns for PFAs in Nigeria than short-term government securities.
He noted, “Pension fund administrators in Nigeria were lagging in terms of returns relative to the inflation rate. 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.”
Ilori also highlighted the lack of access to funds as the rationale for targeting mid-sized firms.
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 to 1.5 trillion naira in revenue a year, they struggle to access funds.”
What is a private credit fund?
A private credit fund is an investment fund that provides loans or other forms of credit to businesses, often in the form of private, non-publicly traded debt. They are usually managed by investment companies and are an alternative to traditional financing from banks.
The fund generates income from interest payments and sometimes, capital appreciation. Some of the more common investors in private credit funds are insurance companies, pension fund administrators, and high-net-worth individuals.
Some of the top private credit funds in the world include Blackstone Group, Apollo Global, and Carlyle Group.
The FCMB Asset Management fund will have a 10-year lifespan, and its returns will be benchmarked to the yield of the 10-year FGN bond plus 3%. UK-based TLG Capital will be a technical partner to FCMB Asset Management for the fund, advising them on how to manage the fund.
More Insights
- According to the National Pension Commission’s June 2024 data, about 63.27% of Nigeria’s N20.48 trillion pension assets were invested in government assets.
- However, as of June 2024, returns on pension assets have been about 22.2%, marking a negative return when compared with an inflation rate of 33.95%.
- In USD terms, the situation is worse as pension assets declined by 38.4% over the past one year, from $22.2 billion in June 2023 to $13.7 billion in June 2024.
- This negative return casts aspersion on the PFA’s major investment option, hence, alternative asset classes like the proposed private credit fund could be seen as a step in a good direction.
