In an interview with BusinessDay’s Dolapo Ashiru, Kai Orga, Acting Managing Director at ARM Investment Managers, speaks on various issues regarding the fund management sector of the economy and how the ARM Mutual Funds have performed over time.

Interviewer: How are you leveraging on technology via digital & mobile platforms to further increase your reach and serve clients better?

Kai Orga: In cognizance of the fact that digital is the future, ARM Investment Managers started on a journey a few years ago to overhaul our platforms, systems, and processes to make them more customer friendly; improve our service delivery and reduce transaction turnaround times. We are implementing an omni-channel approach whereby solutions delivered are consistent across the various platforms, facilitated by a harmonized customer service.

Today, we have multiple channels to serve our clients – a web client portal, mobile application, Quickteller, GT USSD, E-Bills Pay, GT Collections, Shortcode to name a few, which are all being utilised by clients to execute transactions with us. We are able to onboard new clients easily and in real-time; and an integrated mobile application is also underway, as we make a conscious effort to move away from having multiple applications operating in silos. Adding to our portfolio of channels, we launched PayDay Investor last year, an investment application that enables our customers to invest seamlessly in the ARM Money Market Fund while providing convenience, and excellent user experience to our customers.

We are however mindful of the inherent risks associated with financial technology and the need to ensure that customer data is kept safe and managed appropriately, therefore, we have strengthened our risk management processes by including IT security as a focus area within our risk management framework.

Interviewer: What are your views on the emergence of Fintech companies and do you feel threatened by their emergence?

Kai Orga: The emergence of Fintech companies has paved way for technical innovation in the finance and investment industry and has given rise to simpler and more customer-focused processes and solutions utilizing faster and better technology as well as harnessing customer data. As a firm that is keen to embrace change, we do not view their emergence as a threat, but rather as an opportunity to learn, adapt and collaborate towards offering better services to our clients.

What is driving patronage for Fund managers especially from the retail client segment?

Kai Orga: The main drivers of patronage are returns and diversification. Retail clients have numerous options for saving and investing their funds; however, the service fund managers offer over and above banks, stockbrokers and other savings and investment platforms is the ability to invest in multiple asset classes and have their investments professionally and actively managed, even with very minimal funds. Through fund management vehicles, investors are exposed to equities, fixed income, money market instruments, real estate and even alternative investments such as infrastructure. Clients are even able to gain access to offshore investment vehicles.

Interviewer: What is the ratio of Retail Vs Institutional Vs HNI clients in the fund management space?

Kai Orga: The assets under management of ARM Investment Managers is currently split almost equally among the 3 investor types – i.e. retail investors, high network individuals and institutional clients. It is difficult to estimate the split for the industry as a whole; however, there is a concerted effort by fund managers to grow their retail products.

Interviewer: What is the average return on portfolio like in the various Asset classes?

Kai Orga: In 2018, bond and Treasury bills yields were 14.16% and 13.92% on average, respectively. As for equities, the Nigerian Stock Exchange (NSE) which comprises all listed securities in Nigeria had a negative return of 17.8% in 2018, after a positive return on 42.3% in 2017. The stock market in Nigeria is especially very volatile, which means there is significant opportunity for returns but the accompanying risk is also high. Stock selection is key when investing in equities as some specific stocks have a better performance history and are better able to withstand shocks in the market.

Interviewer: In advising clients what determines your portfolio structure/Asset mix for the different categories of clients?

Kai Orga: Our financial advisers profile clients majorly based on three categories being: The clients’ investment objective; risk profile (how much risk the client is willing to take in order to achieve returns); investment horizon (how long the funds are available for investment). All of these affect the investment advice given as some investments have a minimum holding period while some investments are very risky and should only be undertaken by individuals that have enough assets to sustain them should the investment turn bad. We also carry out an assessment of the clients’ peculiar circumstances – that is their age, marital status, number of dependents, income and net-worth, which feeds into our investment advice. One other important factor in structuring client portfolios is the performance of the various asset classes (both current and outlook) as we always strive to ensure optimal returns for our clients.

Interviewer: What are the current challenges being faced by fund managers in Nigeria? And how are you mitigating against those challenges?

Kai Orga: The Nigerian financial market is still relatively small with a lot of potential for growth. The main challenges we face as fund managers are around the implementation of ethical standards and effective corporate governance, as these factors ultimately have a major impact on the integrity of our financial market. Another key challenge is the depth of the market. While the industry has come a long way, low financial literacy and awareness has hindered growth of the industry. There is only so much development that can take place in terms of developing new products and asset classes unless we have a population that is ready to accept this. ARM Investment Managers does its bit by working with the regulators to improve financial literacy through series of financial planning presentations to targeted audiences.

Interviewer: How challenging is it to assess risk in the Nigerian Financial markets given our level of development and data availability?

Kai Orga: The Nigerian financial market is still relatively small but with a lot of potential for growth and development. The regulators have done a lot of work in terms of investor protection, and this is helping to reduce the inherent risks in the market. This is the reason Fund Managers’ investment universe is limited to listed companies and securities that are well regulated and monitored. However, while the non-bank financial services industry has come a long way, we still have challenges and inefficiencies surrounding transparency and disclosures as well as unfriendly practices. Furthermore, there is still a certain element of market risk that cannot be eradicated even in developed countries.

Interviewer: Which of your various mutual funds has received the most subscription from your clients and what reasons are given for this selection?

Kai Orga: Most Nigerian investors are risk-averse, so products in the fixed income space which are capital guaranteed and provide a steady stream of income are usually preferred. Consequently, the ARM Money Market Fund is by far the highest subscribed fund in terms of assets under management and customer base.

Interviewer: Can you give us an idea of your various mutual funds and their performance?

Kai Orga: ARM Investment Managers currently manages 4 different mutual funds: Aggressive Growth Fund, Discovery Fund, Ethical Fund, and Money Market Fund. Each fund has its own risk and returns objectives which ultimately determines the required asset class allocation to meet those objectives. The ARM Money Market Fund is a risk-free fund which guarantees investors’ capital while the Aggressive Growth Fund is our riskiest fund on account of its high allocation to stocks (80-100%).

The ARM Mutual Funds usually outperforms their respective benchmarks as well as other Funds in the industry with similar asset allocation profiles. For instance, ARM Money Market Fund is currently yielding 13.74% as of end of March 2019.

ARM Mutual Funds

• The ARM Discovery Fund is an investment that provides capital growth primarily through investments in equity, real estate and fixed income securities in the Nigerian market. The Fund Manager maintains a minimum equity position of 40% and a maximum of 65%. The Fund is suitable for investors who have a moderate risk tolerance level. The minimum investment is N10,000 and additional investment is N5,000.
• The ARM Aggressive Growth Fund invests in stocks (80%-100% maximum) and money market instruments (0%-20% minimum). It is suitable for high-risk takers who expect capital appreciation over the long term. The minimum investment is N50,000 and additional investment is N10,000.
• The ARM Ethical Fund invests in shares of Shari’ah compliant companies quoted on the Nigerian Stock Exchange, real estate and other investments compliant with Islamic Finance. Certain sectors that hold stocks such as Tobacco, Breweries, and Entertainment are excluded from the Fund’s portfolio. It is suitable for investors who would like to invest according to their moral beliefs and also wish to achieve long-term capital growth. The minimum investment is N10,000 and additional investment is 5,000.
• The ARM Money Market Fund (MMF) is an open-ended fund that invests in money market securities such as Bankers’ Acceptances, Certificates of Deposits, Commercial Papers, Short term debt securities issued or guaranteed by any Federal or State Government of Nigeria (such as Treasury Bills). The Fund is structured to preserve capital invested and provide income which is payable quarterly. The minimum investment is N1,000

For 3 consecutive years, our mutual funds have outperformed their benchmark brief description of the different funds and their performance over the last 3 years is as stated below:

Interviewer: What determines the inclusion of an asset class and the weight assigned to it in a Fund?

Kai Orga: Each Fund registered with the Securities and Exchange Commission (SEC) has a trust deed which clearly states its risk and return objectives, as well as the asset classes the Fund can invest in and the Fund’s allocation to the various asset classes (ranges). The actual weights assigned to the asset classes however is determined by the fund manager’s assessment of the market and expectations of future performance.

Interviewer: What kind of Equities are included in your equity fund and the criteria for their inclusion or removal?

Kai Orga: ARM invests primarily in blue-chip securities that have demonstrated the ability to provide steady returns over a period of time and also have high liquidity (that is stocks that are actively traded on the Stock Exchange). We invest in securities that we believe are priced below what we consider to be their true business value, to gain significant returns for investors when the price of the stocks rise to reflect the true value of the underlying company. In the same vein, we tend to sell stocks that we believe to be overpriced.

Interviewer: Where do you see the fund management industry in the next 5 years?

Kai Orga: We are confident that the regulators’ actions and efforts will ultimately serve as an impetus for faster growth in years to come. We see an increased interest in securities trading and in mutual fund products as investors become more financially aware, which should hopefully lead to the market becoming more dynamic with the inclusion of more asset classes and more securities on the Exchange. This, in turn, is expected to lead to increased competitiveness on the part of fund managers as we strive to improve our service delivery, leveraging on all available technology, and to focus on developing innovative products that resonate with our target market.