Nigeria’s Wealth Fund is betting global inflation hasn’t peaked
Nigeria’s wealth fund plans to focus on shielding its assets from market volatility this year after rising interest rates and surging food costs led to a 33% drop in earnings.
The Abuja-based Nigeria Sovereign Investment Authority, which manages 1 trillion naira ($2.2 billion) in assets, will use new inflows to buy debt that acts as protection against inflation, and infrastructure assets, to hedge its portfolio against market downturns, Chief Executive Officer Aminu Umar-Sadiq said in an interview. The ex-Morgan Stanley investment banker will focus on protecting assets against downside risks rather than chasing high returns, he said.
The NSIA joins investors rushing to buy the notes betting that inflation hasn’t peaked. BlackRock Inc. has increased its overweight call on inflation-linked debt, while the UK on April 26 received a record level of demand for such securities. The European Central Bank on Thursday raised its interest rate and insisted that the move won’t be the last.
“We’ll also focus a lot on risk mitigation through diversification,” Umar-Sadiq said. “The kind of sectors we will be looking at are those that are non-cyclical.”
Soaring inflation and the fallout from the war in Ukraine have pummeled sovereign wealth funds including Norway’s Norges Bank Investment Management, which manages $1.3 trillion of assets. Norges Bank lost the equivalent of about $164 billion, while the NSIA’s profit dropped by a third to 102.4 billion naira even as assets under management rose about 11%.
Read: Nigeria Wealth Fund Profit Falls 33% in 2022 on Market Turmoil
The NSIA operates a Stabilization Fund that largely invests in US sovereign and corporate debt. It also manages the Future Generations Fund that invests in private equity, hedge funds and shares in developed and emerging markets, as well as a third fund that buys infrastructure assets.
The fund will not liquidate any investment in order to rebalance the portfolio, Umar-Sadiq said, adding that the reallocation will be executed from funds it’s yet to deploy, returns from existing investments and proceeds obtained from the government’s excess crude oil sales.
Africa’s biggest oil producer funds the NSIA primarily from the surplus income generated from the sale of crude oil, its major foreign currency earner. Nigeria allocated an initial sum of $1 billion in seed capital to the fund, two years after it was founded in 2011.
The wealth fund has received $41 million so far this year from the government and is expecting a total of as much as $150 million for 2023 “contingent upon where the oil price is and a number of uncontrollable factors,” the CEO said.
The NSIA forecasts profit and total income will increase as much as 20% this year, driven by portfolio realignments, Umar-Sadiq said.
“As long as your investment compositions are resilient irrespective of what the global macro is doing in the short term, you are going to have a bounce back,” he said.
