By Babajide Komolafe
Coronation Asset Management has called for a harmonised reporting standard for mutual funds in Nigeria.
Making this call in a report on Nigerian mutual funds titled, “ Comparing Mutual Funds – Apples and Oranges’, the company noted the use of different methods of reporting by mutual funds in the country is not in line with global best practices and does not encourage growth of the industry.
Speaking at the virtual media presentation of the report, Guy Czartoryski, Head of Coronation Research, said: “In our view, Nigeria’s diverse measures stand in the way of the development of the industry.
“Although it is growing rapidly, we believe that Nigeria’s Mutual Fund industry requires several more years of growth to reach the N12.3 trillion total size of Nigeria’s Pension Funds”.
Speaking further, he said: “We found two kinds of different reporting. Some funds use Mark-to-Market Accounting, meaning they report the market price of the bonds which they hold.
This can mean that Unit Prices (UP) are volatile when interest rates change and bond prices rise and fall. This happened in 2020 and is happening in 2021. Other funds use Amortised Cost Accounting, which smoothes out the price performance of a fund. Some use a mixture.
“A third issue is the Guarantee. Some funds guarantee their investors a return (they even have it in their name). This means that they may seek to avoid Mark-to-Market Accounting because Mark-to-Market Accounting introduces volatility in Unit Prices (UP) and volatility looks like risk. The fact is, however, is that market a risk exists anyway, no matter how you account for it.
“If Nigerian funds want to play in the international league, they need to adopt Global Investment Performance Standards (GIPS). Very few Nigerian fund managers apply GIPS at the moment. And Mark-to-Market Accounting is one of the cornerstones of GIPS.
“GIPS open the way to the future.
Morningstar and the Financial Times Managed Funds Service. Global investors have access to data on thousands of fund across the world and, thanks to adoption of GIPS, the data is comparable. And it is free. Anyone can use the Morningstar and Financial Times websites to compare thousands of funds.”