FCMB Asset Management is poised to raise N100 billion (approximately $63 million) over the next year to support medium-sized enterprises (MSEs) in Nigeria. This initiative aims to provide an alternative to government securities, offering potentially higher returns for pension fund administrators compared to short-term government bonds.
James Ilori, Managing Director of FCMB Asset Management, announced that the fund will invest in these firms at an interest rate of up to 28.67%, which is the average interest rate for bank loans to medium-sized companies. Ilori emphasized that the fund is designed to mitigate risk while delivering superior returns compared to government securities.
Ilori also highlighted that pension fund administrators in Nigeria have been struggling with inadequate returns due to economic factors like inflation and exchange rate instability. He suggested that, with interest rates expected to decline, long-term investments would offer more stable returns over the next decade compared to volatile short-term instruments.
The fund targets mid-sized firms, which often face difficulties accessing financing. Ilori explained that while small businesses can secure loans from microfinance institutions and large corporations can obtain credit from banks, mid-sized companies generating between N15 billion and N1.5 trillion in annual revenue frequently struggle with financing.
Private credit funds, which provide loans to businesses of varying sizes, are an alternative to traditional financing. These funds are usually managed by investment firms and offer income through interest payments and, occasionally, capital appreciation.
The FCMB Asset Management fund will have a 10-year lifespan, with returns linked to the yield of a 10-year FGN bond plus an additional 3%. UK-based TGL Capital will serve as a technical and advisory partner for the fund.
