African Fund Managers: Governance at the heart of investment decisions

According to a survey of 50 African asset managers conducted for the African Exchanges Linkage Project (AELP), governance, sound regulations and the availability of market and price data help African fund managers in their decision to invest in other African markets. The main factors influencing their choices when it comes to new markets are: market regulation (for 91% of respondents), followed by regulation imposed on investors and the availability of price and market data (each with 90%). 

Other key criteria that help fund managers choose where to invest include: transaction price levels, execution and commission efficiency (86%), quality of companies and investment opportunities (also at 86%), institutional, social and governance criteria (84%), and availability of research (80%). Three-quarters of investors responded that they are reluctant to invest in small and illiquid markets or in those with excessive valuations. Only half of the respondents indicated that their decision to invest in a company is based on its dividend policy, while valuation and governance were the most frequently cited factors.

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Bullish sentiment amongst Nigerian and Francophone managers

Asset managers in Nigeria and francophone West African countries are the most optimistic about the prospects for African economies. The AELP study found that 97% of participating Nigerian asset managers are optimistic about the future of the continent, with average assets under management of $364 million, followed by Francophone asset managers with 85% and who have an average of $416 million in assets under management. The average for all respondents, including some South African managers, was $4.1 billion in assets under management.

Optimism was also prevalent among participating asset managers in Mauritius (80% were optimistic), Morocco (73%), Nairobi and Egypt (each with 65% of respondents being optimistic). Nearly half of the respondents (46%) manage assets with five-year investment horizons and 23% of them have investment horizons of three to five years.

African fund managers meeting global standards

Commenting on the study, Dr. Edoh Kossi Amenounvé, President of ASEA, said: “The results of the study confirm the high level of professionalism of African fund managers using globally recognized standards and criteria in their decision making. This is very reassuring for the success of the AELP initiative.

The survey set out to assess the attractiveness of different investment markets within the AELP, which brings together seven major African stock exchanges with the aim of strengthening trading, investment and information links. The AELP provides a technological platform to link brokers, so that a broker on one exchange can send investor orders to a broker on another exchange for execution.

A flourishing exchange

As a reminder, the AELP is a joint initiative of the African Securities Exchanges Association (ASEA) and the African Development Bank (AfDB) to unlock pan-African investment flows, promote innovations that foster diversification for investors and address issues of market depth and liquidity. The initiative is financed by the Korea-Africa Economic Cooperation (KOAFEC) through the African Development Bank.

The AELP brings together the Regional Stock Exchange (BRVM, comprising eight West African countries), the Casablanca Stock Exchange, the Egyptian Stock Exchange, the Johannesburg Stock Exchange, the Nairobi Securities Exchange, the Nigerian Stock Exchange and the Mauritius Stock Exchange.

According to the participating markets, cross-border trade between their seven exchanges totalled $1.1 billion in 2019, rising to over $500 million in the first quarter of 2020. The “African Securities Listed” assets between its exchanges offer capital investments in more than 1,050 companies, including some of Africa’s most promising and profitable companies as well as global leaders. Investors can also buy or sell bonds, exchange-traded funds (ETFs) and derivatives if listed on participating exchanges.

ASEA supports African economic integration and the African continental free trade area. The AELP will promote the free movement of capital and investment.

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(Featured image by S. Aderogba via Wikimedia Commons)

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First published in ecoactu.ma, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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