The Securities and Exchange Commission (SEC) announced the approval of five Infrastructure Fund Shelf programmes at the quarterly Capital Markets Committee (CMC) meeting held last month.
Findings showed that the SEC has been providing the required regulatory oversight in promoting innovative funding methods for activities aimed at enhancing rapid economic growth and development in Nigeria.
SEC also recognises the role of Alternative Assets in providing medium-to-long-term funding for viable projects in different sectors of the economy whilst matching this goal with investors’ aim of achieving their investment objectives.
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Asset classes are divided into two, namely, Traditional Assets and Alternative Assets. Traditional Assets are made up of Money Market Instruments, Bonds, and Equities.
On the other hand, Alternative Assets include Private Equity, Venture Capital, Private Credit/Debt, Infrastructure, Real Estate, Hedge Funds, and Commodities.
Alternative Assets are usually suitable for investors who have a high level of understanding of financial markets and can invest for longer investment periods, as they tend to lock in investments for the medium-to-long term.
Alternative Assets seek to compensate investors for investing funds for relatively longer periods by generating returns above what Traditional Assets offer whilst minimising portfolio volatility, given that Alternative Assets usually have a low correlation with Traditional Assets.
In Nigeria, there are currently several Alternative Assets Funds, especially Private Equity Funds, Infrastructure Funds and Real Estate Investment Trusts (REITs).
However, other attractive Alternative Assets Funds, such as Private Credit Funds, do not seem to be available to professional investors.
It appears this is about to change as there are reports that the SEC has approved the first Private Credit Fund in Nigeria, called the FCMB-TLG Private Debt Fund.
The Fund is expected to provide investors with benefits typical of Private Credit Funds, such as better risk-adjusted returns relative to Traditional Assets and increased portfolio diversification. By channelling capital to critical sectors of the economy, it will further aid the development of Nigeria’s financial markets and economy.