MUTUAL FUNDS: Coronation Asset Management makes case for harmonized reporting
By Eyo Nsima
Coronation Asset Management, a firm robust platform that provides investment management solutions for our institutional clients has made the case for harmonized reporting standards for mutual funds in Nigeria.
The firm, which made the case in a report – Comparing Mutual Funds – Apples and Oranges – noted the use of different methods of reporting by mutual funds are not in line with global best practices.
However, speaking at the virtual media presentation of the report, Guy Czartoryski, Head of Coronation Research, stated: “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.
“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 a risk. The fact is, however, is that market 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.”
He added: “GIPS open the way to the future. Morningstar and the Financial Times Managed Funds Service. Global investors have access to data on thousands of funds across the world and, thanks to the 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. The first step is to harmonize reporting among Nigeria’s Mutual Funds. A GIP has to be a long-term goal because introducing GIPS is expensive and takes time to enforce. Harmonizing the reporting of Nigeria’s Mutual Funds is a necessary step to creating comparable UP data and helping the industry to achieve its potential.”
