Cecilia Hesse, Managing Director, Temple Investments: Interview

Interview: Cecilia Hesse

What is the current outlook for the fund management segment in Ghana?

CECILIA HESSE: Even though we saw a reduction in total assets under management (AUM) in 2018, the past eight years have seen significant growth in AUM for fund managers. The 2017-18 banking crisis drove retail investors to move a significant amount of their assets from fund managers to Tier-1 banks. This, together with fund investment losses, resulted in a fall in AUM from GHS35.2bn ($6.8bn) to GHS19.5bn ($3.8bn) between the third and fourth quarters of 2018. Nevertheless, some segments have seen significant growth, with AUM held by pension funds increasing from GHS1.1bn ($213m) in 2014 to GHS9.4bn ($1.8bn) at the end of 2018. It is therefore clear that the fund management segment is evolving, and this is likely to continue.

Can you describe which reforms have taken place and how they have impacted the market?

HESSE: As part of the reform and clean-up of the market, the Securities and Exchange Commission (SEC) recently revoked the licences of 53 fund management firms. Prior to taking this action, the SEC had announced increases in the industry’s minimum capital requirements, lifting the threshold from GHS100,000 ($19,400) to GHS2m ($387,000) for fund managers. We expect these developments to strengthen the industry and lead to consolidation gains for the remaining fund managers. With continued reforms and a strengthened regulatory framework, confidence in the sector should improve and the outlook for next year shows potential.

How will the expansion of the pension fund segment impact the investor base?

HESSE: In recent years pension funds have come to provide a significant source of funding for the domestic capital market. Previously, with the exception of the state-owned pension fund, there was limited interest among investors in domestic issuances. What interest there was came primarily from the country’s dominant collective investment schemes, with direct interest from retail and institutional investors remaining rather low.

Pensions are currently the largest part of the asset management segment, making up 49% of its total value as of the end of 2018. This dominant share is likely to continue to grow in tandem with the country’s GDP. As a result of this expansion – and as Ghana’s overall capital market has grown – we now have an established corporate bond market and government sovereign bonds. Furthermore, domestic investor holdings in Ghana have exceeded those of foreign investors for the first time, even as total issuances have increased.

In which areas do you foresee opportunities for the investment industry?

HESSE: One of the most promising areas within the investment industry is the development of alternative investments to provided new asset classes for fund managers. With new guidelines in place, we expect to see more real estate investment trusts (REITs), including a government housing scheme announced in the 2019 mid-year budget, which will operate using a REIT model.

Private equity (PE) is another investment opportunity that has become more attractive in recent years. While the PE market remains in a nascent stage, it presents possibilities to be explored in 2020 by pension fund managers in terms of diversification and investment returns. In the fixed-income segment, our expectation is for more receivable-backed bonds to be issued, similar to the Ministry of Finance-sponsored Energy Sector Levy Act special purpose vehicle, as the government looks for more financing avenues to raise capital for infrastructure projects.