The investment management company sector in Nigeria is rapidly evolving, with a surge of new companies emerging. Over the past five years (2019-2023), this industry has witnessed substantial growth, with Assets Under Management (AuM) skyrocketing at a compound annual growth rate (CAGR) of 21.9%.
So, this article is for business enthusiasts in Nigeria who are interested in spearheading economic growth by establishing an investment management company. Here, you’ll discover answers to the following questions: What is an investment management company? What does an investment management company do or how does an investment management company work? What are the types of investment management companies? And how to start an investment management company.
What is an investment management company?
Simply, an investment management company is an establishment that manages different investment assets for clients.
For example, Jane is a business owner who makes N10,000,000 in profit every month. Instead of just keeping her money in a bank account, Jane wants to create a source of passive income. She should turn to an investment management company.
The company will assign a portfolio manager to Jane. This professional will look at Jane’s financial goals, how much risk she can handle, and her investment timeline. Together, they will create a diversified portfolio with stocks, bonds, and real estate that matches her goals.
Furthermore, the portfolio manager will research new investment opportunities and keep Jane updated with regular reviews. As the market changes, the manager will adjust the strategy to maximize returns and control risk. They will also give Jane financial planning advice to help her prepare for retirement and save for her children’s education. This complete approach ensures Jane’s investments are well-managed and tailored to her long-term goals.
The above scenario is an accurate representation of an investment management company
What does an investment management company do?
Notably, the importance of investment management companies is wide-reaching. An investment management company handles various important tasks, including managing investment portfolios, researching and analyzing data, providing financial planning services, overseeing risk management, offering advice, and tracking performance.
Now, let’s look at how an investment management company works in more detail below.
- Portfolio Management
One of the few ways investment management companies work is to create and manage investment portfolios, which can include stocks, bonds, real estate, and other assets. They make decisions about how to divide investments and which assets to choose to increase returns and reduce risks.
- Research and Analysis
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In addition, they research the market carefully to find investment opportunities. This means looking at market trends, economic indicators, and individual stocks to make informed choices.
- Financial Planning
Another way an investment management company works is by offering financial planning services. They help clients set and reach their financial goals, such as planning for retirement, saving for education, and organizing estate matters.
- Risk Management
Furthermore, investment managers monitor and control risk in investment portfolios. They use strategies to protect against possible losses and safeguard clients’ investments.
- Advisory Services
Likewise, many investment management companies provide advisory services to help clients make smart investment choices. They work closely with clients to understand their needs and provide customized advice.
- Performance Monitoring
Lastly, they monitor investment performance closely and change strategies as needed to meet clients’ goals. They also provide regular reports and reviews as part of this process.
What are the types of investment management companies?
Investment management companies come in different types, each with its benefits for investors. Knowing these types can help you start an investment management company that matches your financial goals. Here are the main categories of investment management companies:
- Mutual Fund Companies
The first category, Mutual fund companies, collects money from many investors to invest in a variety of assets, like stocks, bonds, and other securities. They offer different funds to meet various investment goals and risk levels. Mutual funds are open-ended, which means they regularly issue and redeem shares based on what investors want.
- Hedge Funds
Secondly, Hedge funds use advanced investment strategies to aim for high returns. They usually serve wealthy individuals and big investors. Hedge funds face less regulation than mutual funds, which lets them adopt more aggressive investment approaches.
- Private Equity Firms
In addition, Private equity firms invest in private companies or acquire them, aiming for long-term growth and profit. They focus on improving these companies’ performance before selling them for a profit. Private equity investments are typically hard to sell and require a long-term commitment.
- Wealth Management Firms
Furthermore, Wealth management firms help wealthy individuals and families manage their money. They provide personalized investment management and financial planning services. Their services include investment advice, estate planning, tax strategies, and retirement planning.
- Unit Investment Trusts (UIT)
Finally, Unit Investment Trusts (UIT) are companies that invest in a fixed group of securities. Investors buy shares or units in the trust, and the portfolio stays the same until it matures or gets sold. UITs are usually managed passively and have a specific investment period.
How to start an investment management company
The first step in launching an investment management company is to ensure compliance with the relevant laws governing the industry. These regulations can stem from various sources, including the Companies and Allied Matters Act (CAMA), the Investment and Securities Act (ISA), the Code of Corporate Governance, and guidelines set by the Central Bank of Nigeria (CBN), among others. Therefore, to establish your investment management company, you must fulfill the following key requirements:
- Shareholders: In the first instance, you need at least one shareholder, which can be either an individual or a corporate entity.
- Directors: Likewise, a minimum of two directors is required to start the company unless it’s classified as a small business. Also, all directors must be over 18, mentally capable, and free from any court restrictions.
- Name Reservation: Next, you must secure a unique name for your company that does not raise objections with the Corporate Affairs Commission (CAC).
- Document Preparation: Furthermore, it’s essential to draft the Memorandum and Articles of Association (MoA & AoA). Given the complex legal issues, it’s best to get professional help. This will help you avoid mistakes that might result in your company operating illegally. Additionally, after preparing these necessary documents, submit them along with the applicable fees to the CAC. If your submission is approved, the CAC will issue a certificate of incorporation.
- Authorized Share Capital: In addition, for Funds/Portfolio Management companies, there’s a minimum requirement of 150 million Naira for authorized share capital. However, this figure is only a baseline and does not define the actual capital needed for effective operations.
- Appoint a Company Secretary: Although not mandatory, appointing a company secretary can prove beneficial in managing various administrative functions.
source: freepik.com - CBN License: Similarly, it is crucial to secure a CBN License. To do this, aspiring entrepreneurs must submit a formal application to the Governor of the Central Bank of Nigeria (CBN). This application should be accompanied by the following:
- Application Fee and Capital Deposit: A non-refundable application fee of N100,000.
- Financial Evidence and Business Plan: This includes
- Proof of payment of the minimum capital by shareholders.
- A comprehensive business plan outlining:
- Company objectives and aims.
- Market need and unique services.
- Five-year financial projections.
- Branch expansion plans.
- Staff training and succession planning.
- Organizational structure and management team roles.
- Assumptions and conclusions of the feasibility study.
- Legal Documents: Examples include:
- Draft Memorandum and Articles of Association.
- Letter of intent from each shareholder.
- List of shareholders with detailed information.
- CVs of proposed Board members and management team.
- Security Exchange Commission (SEC) License: Furthermore, it is crucial to obtain an SEC license for a Fund or Portfolio Manager in Nigeria. Below are the necessary steps to acquire this license:
- Pay the application, processing, and registration fees.
- Ensure a minimum paid-up capital of N150 million.
- Secure a fidelity insurance bond that covers 20% of the minimum paid-up capital.
- Cover the fees for sponsored individuals.
- Complete and submit the SEC forms for the company, sponsored individuals, and directors.
- Provide a Certificate of Incorporation along with the Memorandum and Articles of Association.
- Present audited financial statements.
- Submit sworn undertakings agreeing to abide by SEC rules and regulations.
- Include at least three sponsored individuals, one of whom must be a compliance officer. The Managing Director must also be a sponsored individual.
- Supply detailed CVs and police clearance reports for both sponsored individuals and directors.
- Provide evidence of a minimum of four years of post-graduation experience for sponsored individuals.
- Share a company profile that includes its history, structure, and principal officers.
- Offer information on any subsidiaries and associated companies.
- Submit evidence of share allotment.
- Present an operational manual or organizational chart.
- Include a business plan along with bank statements.
Correspondingly, it should be noted that the SEC may ask for more documents as necessary. To that extent, an application will only be deemed complete when all required paperwork is submitted. During the application process, the SEC might also carry out inspections. So, it’s crucial to have a solid grasp of SEC rules and regulations before setting up an investment management company
Now, if you have further questions or require any assistance with setting up an investment management company, kindly reach out to info@starrattorneys.co or call us on +234 806 008 9327. Indeed, our lawyers are available round the clock to provide solutions to your needs.
