The Nigeria’s mutual funds industry is valued at N1.58 trillion as at the last quarter of the year 2020. The industry is largely dominated by the big five (controlling about 75% of the asset under management (“AUM”) in Nigeria). As of October 2020, the Stanbic IBTC Asset Management Limited had a total AUM of N649 billion (representing 41.04% of the industry), the FBN Capital Asset Management Limited had AUM of N272.2 billion (amounting to 17.21%), the UBA Asset Management Company had AUM of N150.2 billion (equivalent of 9.5%), the Asset and Resources Management Limited managed about 6.72% of the industry (equivalent of N106.3 billion) and the Chapel Hill Denham Management Limited’s AUM stood at N61.9 billion.
However, there is still a room for small and medium players. Existing businesses in real estate, micro credit sector etc. wishing to diversify should find funds industry easy to penetrate. Also, two or more young employees in financial sector with entrepreneurial drive and a minimum of four (4) years relevant experience can pool resources together to easily jumpstart a fund manager business. This is because the financial requirement is low and other regulatory requirements are easy to meet.
The fund/portfolio manager’s licence, granted by the Securities and Exchange Commission (“SEC”), is required for any business which manages any collective investment schemes (“CIS”) or investment portfolios on behalf of clients or retail investors (including stocks, bonds, etc.) or invites public members to invest for Return on Investment (“ROI”) in whatever aspects of commerce. Recently, SEC embarked on clampdowns on real estate companies and agric-investment companies who advertise their investment products with a promise of ROI without any regulatory licence. According to the Commission, those businesses require a fund/portfolio management licence under its regulatory supervision to avoid the recently reported cases of massive fraud by unlicensed investment companies, leading to loss of over N300 Billions and suicides by victims.
The process for obtaining a fund/portfolio management licence is seamless if properly handled. While the application for registration of the company is submitted to the Corporate Affairs Commission (“CAC”), the application for operational license is to be submitted to and processed by SEC. Below is a simplified highlight of the requirements and procedure for the business registration and application for its operational license.
- Share Capital Requirement: Any company desiring to operate as a fund manager must have a minimum paid up share capital of N150,000,000 (One Hundred and Fifty Million). If the company had been registered for other business, then the object clause may need to be changed accordingly. If the applicant company has been incorporated with a lower share capital, then the resolution for increase in share capital must be passed, as proof of same will be required for the application for the license. The SEC will require evidence that the applicant company has financial capacity to meet the minimum paid up share capital. Please note that the minimum paid up share capital needs not be entirely cash; it is sufficient if applicant company can show bank balances, fixed assets or investment quoted securities worth N150,000,000 (One Hundred and Fifty Million Naira) subject of course to the condition that the cash assets ratio shall be 60% liquid assets and 40% fixed and other assets.
- Insurance Requirement: The mutual funds industry is a high-risk industry. The SEC is keen on protecting customers’ money against mismanagement or theft by registered funds managers. Consequently, every applicant is required to take out a Fidelity Insurance Bond covering at least 20% of the minimum paid up capital. A fidelity insurance policy is a type of insurance policy which covers or intended to cover losses which may arise from the funds management as a result of an act of forgery, fraud or dishonesty by the Fund Managers’ employees. This policy compensates funds owners within the limitation set by the policy. For the purpose of the operational license application, at least N30,000,000 (Thirty Million Naira) must be insured via Fidelity Insurance Bond to avoid total loss to funds’ owners.
- Sponsored Individuals and Directors Requirement: There is a requirement for the applicant company to register a minimum of three (3) individuals (also known as “Sponsored Individuals”) and the directors with the SEC. Usually, one of the sponsored individuals will be registered as a Compliance Officer, then the Managing Director and a Director of the Company. The Compliance Officer is expected to have fair knowledge of (and shall be responsible for monitoring the company’s compliance with) the relevant provisions of the Investment and Securities Act 2007 (now parts of the Federal Competition and Consumer Protection Act 2018), the SEC Rules and Regulations, notifications, guidelines, instructions etc. issued by SEC or the Federal Government. So, the applicant has to fill and submit some duly executed SEC Forms. For instance, Form SEC 2 and Form SEC 2D are for Compliance Officer and Directors respectively. Below are the required particulars of the Sponsored Individuals:
- Full postal addresses of immediate previous employers, bankers (with Current Account number) and nominated referees of sponsored individuals;
- Detailed curriculum vitae of Sponsored Individuals and Directors which should include details of activities arranged from Secondary School to date with dates; (Please note that any gap in employment and educational history should be explained);
- Copies of credentials of Sponsored Individuals including secondary school and NYSC discharge certificates (Please note that all originals will be required for sighting by the SEC);
- Evidence from the Sponsored Individuals of having the minimum of four years post-graduation experience to perform the Fund/Portfolio Manager Function;
- Police clearance report for each Sponsored Individual. Please note that each sponsored individual will be required to report at the SEC head office in Abuja or the Lagos zonal office (at an appointed date) with two recent passport photographs to commence the process; and
- Copy of means Identification of the Directors and the Sponsored Individuals of the Company (i.e., International Passport, tax or utility payment documents).
Please note that a fair knowledge of the Rules and Regulations of the Commission and Investments & Securities Act No 29 of 2007 and the Capital Market is an essential prerequisite for registration.
- Requirement Relating to Applicant Company: The applicant company is required to submit some corporate documents (duly certified by the CAC) such as certificate of incorporation, memorandum and articles of association (which clearly shows that the company is registered to do funds manager’s business), CAC Forms (showing Statement of Share Capital, Return of Allotment, and Particulars of Directors) and other relevant documents. Please note that the original copy of the certificate is to be presented for sighting. Specifically, the applicant company must submit the following additional documents or information:
- Company’s Profile, which should include, among others, brief history of the company, organizational and shareholding structure, principal officers as well as details of past and current activities (if it’s an existing company seeking to diversify into funds manager business);The name(s) and address(es) of the company’s subsidiaries/associated companies (if any), type of business and percentage holding;
- Evidence of Payment of shares allotted to the shareholders;
- Operational manual or organizational chart of the company;
- Business plan;
- Bank statement of accounts operated by the Company for the last 6 months;
- Latest audited accounts or audited statement of affairs of the company. Please note that the cash assets ratio shall be 60% liquid assets and 40% fixed and other assets.
- Sworn undertaking to keep proper records and render returns as may be specified by the Commission from time to time signed by a director or the company secretary (to be notarized);
- Sworn undertaking to abide by SEC Rules and Regulations and Investments and Securities Act No.29 of 2007 by a director or the company secretary (to be notarized); and
- Any other documents as may be required by the SEC.
- Fees Requirement: The costs of licensing of a Fund/Portfolio Management Company have been increased by SEC effective 20th December 2021. The total fee for the application for funds manager’s license is about N10,700,000 (Ten Million, Seven Hundred Thousand Naira). The specific fees are as follows:
- Filing/Application Fee– N100,000 (One Hundred Thousand Naira);
- Processing Fee– N300,000 (Three Hundred Thousand Naira). This amount used to be N200,000 (Two Hundred Thousand Naira) before the 20th December 2021 amendment;
- Registration/License Fee– N10,000,000 (Ten Million Naira) (Please note that the License Fee was increased by SEC from N500,000 to N10,000,000, effective 20th December 2021);
- Sponsored Individual Fee – N100,000 (One Hundred Thousand Naira) for each sponsored individual. The three (3) Sponsored Individuals will be N300,000 (Three Hundred Thousand Naira);
- Office Requirement: Every applicant company for the license of a fund manager is expected to have a business office. The SEC will visit the applicant’s office for inspection before the grant of the license. But before then, during interaction with the directors and Sponsored Individuals, the SEC would train and educate them on the basic requirements for the office set up and operational guidelines.
- Timeline for Completion: Baring any unexpected circumstance, the incorporation of the company with the CAC and obtaining the license from the SEC should not exceed between 8 to 12 weeks from the date of submission of application. Please note that an application for fund manager’s licence is deemed to have been duly submitted to the CAC or SEC when all the fees have been paid, all the required documents and information have been submitted and all queries have been answered and nothing else is outstanding.
