The Bank of Ghana’s recent Financial Stability Report reveals a promising outlook for Ghana’s asset management industry (AMI), which demonstrated notable growth in 2023.
A favorable macroeconomic environment, characterized by improved economic stability and investor confidence, significantly propelled the industry forward. With a strong 38% year-on-year increase, the total assets under management (AUM) in the sector reached GH₵67.5 billion. Notably, pension funds emerged as a key driver of this growth, cementing their role as a cornerstone of Ghana’s expanding asset management landscape.
The impressive expansion in AUM reflects a Compound Annual Growth Rate (CAGR) of 23% over the past decade, underscoring the asset management industry’s resilience and adaptability to market fluctuations and macroeconomic challenges. This resilience is even more notable in light of the turbulent economic landscape in recent years, which included challenges like the Domestic Debt Exchange Programme (DDEP) and fluctuations in market interest rates. Despite these headwinds, the industry displayed a renewed optimism and sustained growth trajectory in 2023, surpassing the 10% increase recorded in 2022.
The report highlights that this growth was not uniform across all asset classes within the sector, with different fund types performing variably. Pension funds, in particular, emerged as a dominant force, driving the sector’s overall performance and contributing significantly to the year’s achievements.
Pension Funds, The Backbone of the Asset Management Industry
Pension funds have consistently proven to be a reliable and robust asset class within Ghana’s asset management sector. According to the Bank of Ghana’s report, pension funds experienced a 12% growth, reaching a total AUM of GH₵39 billion. When assessed on a “Held to Maturity” basis, this value extends to GH₵49 billion, making up an impressive 71% of the industry’s total assets.
The growth in pension funds can be attributed to their long-term investment nature, which allows for steady asset accumulation even amid market volatility. These funds play a crucial role in providing financial security for individuals in their retirement years while also contributing significantly to the development of Ghana’s capital markets.
The performance of pension funds has become increasingly important to the asset management industry, as they represent the largest segment of assets and are seen as a stabilizing force within the broader investment landscape.
In addition to pension funds, private wealth and other funds also contributed positively to the asset management sector’s expansion. The report notes a 38% increase in the value of private wealth and other funds, amounting to GH₵9.7 billion. On a “Held to Maturity” basis, this figure rises to GH₵10.8 billion, representing around 18% of the industry’s total assets.
This growth in private wealth funds indicates an increased interest in diversified investment options among high-net-worth individuals and other investors seeking opportunities beyond traditional savings accounts. The rise in private wealth funds further illustrates the sector’s dynamism, with investors opting for asset management firms to safeguard and grow their investments.
Decline in Collective Investment Schemes (CIS)
While pension and private wealth funds recorded strong performances, Collective Investment Schemes (CIS) faced challenges in 2023. According to the report, CIS experienced a 1% decline in net asset value, totaling GH₵5.2 billion (GH₵6.9 billion on a “Held to Maturity” basis), making up 10% of the sector’s assets.
The Bank of Ghana attributed this decline to several factors, including mark-to-market adjustments and liquidity issues stemming from the DDEP. Additionally, fluctuating interest rates led investors to favor government securities over CIS, further impacting the sector’s performance.
The challenges faced by CIS highlight the ongoing shifts within Ghana’s financial landscape, as investors increasingly lean toward more stable and government-backed securities. Nevertheless, the potential for recovery exists, especially as economic conditions continue to stabilize.
The broader economic environment played a critical role in driving the asset management industry’s growth in 2023. The Bank of Ghana cited a relatively stable macroeconomic climate as a key enabler of the sector’s performance, fostering investor confidence and attracting additional capital inflows. Improved economic conditions led to increased investor interest in asset management products, with the central bank noting a trend of higher allocation toward government securities amid shifts in interest rates.
The resilience of the asset management industry, particularly within the pension and private wealth segments, is a testament to the sector’s adaptability to economic conditions. The central bank’s report suggests that as long as Ghana continues to foster a stable economic environment, the asset management industry will remain a vital component of the country’s financial ecosystem.
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