Nordea Capital: Asset Management, Corporate Finance and Private Equity in Ghana

Interview with Aseye Akotia, CEO at Nordea Capital

Tell us about Nordea Capital.

Nordea turns five in March. We started our business and came into this space at a time when we had players who had been here for two or three decades. They were very established and very well known in the business. So, entering the investment banking space, the assets management space, the pension space was difficult. In this part of the world, getting major clients to move from one institution to another institution is not that simple. They might not be satisfied with the results and the objectives being met. But typically, they complain and remain. It is a challenge trying to get people to believe in what you stand for. Thankfully, we have a team of our industry people with great track records. It is easy to convince somebody who has seen you being their stockbroker ten or thirteen years ago, being their fund manager for seven or eight years, and then when you tell them that you can do it, they have seen you do it over and over again. So, come to us and we will help you meet your objectives as a client, and we as a business will achieve what we set out to do as well, and we are happy. When we came into this space, we realized that there had been a fundamental problem. We had a lot of investment banks, especially assets management companies, doubling as a sort of bank, in that they were taking money and just working in the money market space and giving you some sort of placements or fixed deposits. But that is not the core mandate that the Securities and Exchange Commission set us to do. We are supposed to be running portfolio management for these clients. In most typical assets management companies’ financials, their revenue is coming more from interest income, which is not supposed to be the case. It is supposed to be a fee income rather than an interest income because your advisories and your portfolio are supposed to give you fees. Interest income is supposed to be the barest minimum or even absent if you are really running the way the SEC wants you to. So, we decided to do something different. We decided not to be aggressive on what was the usual. Instead of asking clients to come and place monies with us, we ask people to come in, so we talk to them, ask what their objectives are, and structure investment portfolios to suit those particular objectives. We want to go beyond you just placing your money with us and giving you fixed rates. That is not investment banking. Anyone can do that. It is tough to have a philosophy like that, because you have most of your investors out there who just want to be guaranteed their rates or their returns and do not want to know about the portfolio. You take that risk as a professional. So, over time, you get very decent returns for some key clients, it becomes a reference point, and your portfolio grows. It has worked for us for five years and we do not intend to change that philosophy.

Do you have any clients where you have made that difference?

Instead of asking clients to come and place monies with us, we ask people to come in, so we talk to them, ask what their objectives are, and structure investment portfolios to suit those particular objectives. We want to go beyond you just placing your money with us and giving you fixed rates.

We want the client or the potential investor to think of Nordea as a group of investment bankers who understand the business. We want to be known as “the knowledge people.” Typically, you would not see an ad for Nordea that says that we run portfolio management or other services; you would mostly see our research papers, the Business & Financial Times, MyJoyOnline, Ghana News Agency. You see more content from us in terms of us taking on very critical subjects like inflation, the reform of the banking sector, etc. Our clients are reading all this and when they do come to us, it gives them comfort. When a client sits in front of a portfolio manager from Nordea and he tells them that after talking to you, let’s structure a portfolio that has X, Y, Z, they are comfortable because they have seen good quality content in our research that shows that we know what we are talking about. For instance, a client that we just signed two weeks ago, the Ghana Susu Collectors Association, is a very volatile association. Susu Collectors in Ghana go into grassroots markets and take small collections from market women and shop attendants and they invest on their behalf. These are people who do not really appreciate too much of your portfolio, your talk about money market, capital market, alternative investments. They do not know, and they do not want to know. They will come to you and ask what they will get in six months, a year? That is all they want. They initially approached us with that as a client. We engaged them on the national level, on the regional level, thoroughly, for about two or three months just to prove to them that portfolio management is the best for them, instead of going into direct fixed deposits. Initially, they were reluctant. There are 600 registered in their association. We had an association that had only 100 people active because the rest of them did not believe in portfolio management. After only a couple of months of engaging them, they have seen what their portfolio looks like and we now have 500 onboard. So, the response now is 85% compared to the initial 18-20% because they have seen that indeed, portfolio management is the way to go for the client. We owe the client the fiduciary responsibility of informing them per our knowledge. Once we show them this, see their objectives, appreciate that they are very risk adverse, find things we can structure for them, and we show them that it is doable by a real-life example, it is win-win. It is difficult, and it is doable.

What are the other areas where you can make a difference?

To move from interest income to fee income, one thing that you need to strengthen is your advisory investment banking desk and that is what we did. Initially, the business was just assets management, research, and corporate finance and you had more the back of this. But, we thought it wise to change and move from just assets management to more wealth management. For individuals who come to us, we do not just speak to the surplus funds they want to invest; we try to speak to their pensions, their tax, anything that has to do with their finances, we should be able to speak to that and give them a solution. We created a portfolio management for our collective investments schemes, our mutual funds, our pool investments, our profit end funds. We created a more specialized role. We have portfolio managers per each account in portfolio management and we have wealth fund managers in wealth management. We also strengthened and built up our corporate finance and research unit, so we can give content week in and week out in all the major print and electronic media outlets. You would not typically see these changes in most of our competitors. You would see just an assets management desk and probably a corporate finance research desk. These are the two main lines of business. We decided to change to give more value for money for our investors who had confidence in us and were willing to get onboard in the business.

What are the major challenges that the industry is facing in Ghana?

As early as December last year, we had 156 assets management companies. That is too many in an economy like ours. We have had six that have fallen off, so about 148 that are currently active and running. Of these, probably 90% are not going in for their core mandate. They go in and guarantee rates for investors. By doing that, they assume the risk. What that translates into is that if a client needs to take his money back, since you assumed the risk, you would have to give the money back to the client, not you going to wherever you invested the money and giving the money back on the behalf of the client. You have to directly fund whatever redemption the client has to make. This caused a lot of defaults in the industry and that created a lot of panic and the confidence in the business is at its lowest point. Sometime last year, the SEC called a meeting telling us that of the portfolio funds in the entire industry, about 50% of our portfolio was not liquid. That is worrying as a business and it has caused a big problem. We had investors who are savvy and knowledgeable about the business saying that instead of them giving money to an assets management company where there is so much default and so much risk, they would rather go to a bank or a savings and loan. So, a lot of monies capital that ordinarily would have come to us for investment is instead going to others in the financial sector. The second point is access to long term funds. We cannot really grow this business without being relevant in solving the problems of long term funding. That is what the clients and the business needs. The capital market is there, but it is quite restrictive. Thankfully, the GAX, the alternative market was created. It solved some problems. There are five businesses listed there, but comparatively, it is not much. We have not been too helpful in really solving the problem of creating an avenue or a platform for long term funding. That is the biggest challenge because we are set up to take monies from the excess or the surplus to the businesses that need these funds. We make sure that we give them guidance so that they do not compromise too much on risk so that when investors need their monies, they get their monies back and meet their investment objectives. That is how the business and the industry will grow. But we do not have access to that. We have the pension fund management wing that has given some light to this. Initially, we had a maximum of 5% of the AUM as an environment for the pension space being invested in corporate bonds. Thankfully, the regulator has eased up a bit and is giving us a cap of 10% of the entire AUM. That is giving some good volume and some good potential funds and has created about three or four banks listed. Currently, we are working on a business that is listing at 100 million. We have all the approvals. This 100 million is going to come at the treasurable rate plus about 2 to 3 percentage points, a maximum of 15 to 16 percent. This same business, if they went to their bankers, would not have gotten 100 million without security or collateral. If you even get it for seven years, on a very good day, it will be 25%, plus fees and everything else, coming out to 30%. The pension fund management moving from 5% to 10% corporate bonds has created some avenues. If we have more such funds coming in, the business and the economy will grow. There is a trickle-down effect when the economy grows.

Why are the funds not coming here? What are they scared of? Do they not want to take the risk if it is too far away, or in emerging countries, or do they not look at the growth rate?

Nordea has come collaborations with some foreign direct investments. For instance, we have had several meetings with KAL, which is one of the biggest private equity companies in the world. We have met about four or five clients and we usually hear the same thing: their balance sheet is too small. Whatever kind of assessments we use for a 5 or 10 million USD transaction is the same as what we use for a 50 million USD transaction. We do not have many businesses that can absorb a minimum of 40 to 50 million USD without giving up absolute majority and handing the business over to the private equity venture firms. There are a few businesses that have strong balance sheets that can absorb that, but there is a cultural problem. We meet these business owners and talk to them and usually there is a notion we have these foreigners to looking into my business and I do not want that. It is a big challenge. We have seen fantastic businesses with very good balance sheets, at over 200 million to 300 million USD, which is quite significant. You talk to second generation owners and you go so far and it gets to a point where he pulls out only to realize that he was not comfortable because of the disclosures. Nobody will give you 50 million USD without you disclosing what your business is. So, there are two sides. There is a problem with small balance sheets absorbing the kind of monies that foreign direct investments and alternative investors want to put into the industry and the economy, against the business that can absorb that kind of money but is not willing to open up. A lot of entrepreneurs who are hungry for success and who are willing to absorb that are too small to take this kind of debt. Sometimes, you have success stories, but they are very minimal.

Do you offer other services in addition to your three main segments?

One of the things that is novel with Nordea and is making us more inroads in the industry is something we developed last year that we call the Nordea Investment App. It has not been fully rolled out yet, but we are piloting with some key clients. We are taking a cue from the banking sector. You can do everything you need to on your mobile phone with regards to your banking services. We developed this app to allow people to deposit money into their investment portfolio accounts, to see real time what the value of your portfolio is, what all the inflows are of the investments or deposits you have made, all the redemptions and withdrawals, your returns, the fees that have been charged, all these the app shows you. The app also shows you the database of all our research papers. There are tons of research papers available. If you are in academia or even at the bank and need to look something up about interest rates but you do not have time, go to the app and there will most likely be something relevant there. No assets management company has brought this out yet. We are spending some good money getting this up and running. By the end of the year, the Nordea Investment App will be very full and functional on any platform or phone. When we do that fully, it would further distinguish us from the rest of the players.

Project yourself in the medium term, two to three years’ time. What would you like the company to be if everything goes according to plan? What is your vision?

The vision is to move all our earnings from interest income to fee income in three years. We want to do away completely with anything with interest income. Our vision is simple. It is to be in the top five investment banks in three years, and to be the top investment bank in five years and take over the industry. That will be our ten-year anniversary.

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