‘We want to aggregate the biggest pool of private capital Nigeria has ever seen’
Titi Odunfa is the founder/CEO of Sankore Investments, a boutique wealth management firm that provides advisory, brokerage, fund management and other investment services to high net worth individuals and corporations. In this interview with BusinessDay’s Editor, Patrick Atuanya and Senior Associate, Lehle Balde, Odunfa describes her journey from Goldman Sachs to starting a hedge fund and now providing investment strategy and guidance to clients. Excerpts…
Q Thank you for having us today, can you tell us about your firm and why you decided to set up a firm that caters to high net worth individuals?
Sankore Investment is a full-service wealth management platform and I started it because I have been interested in investing since I was at least thirteen. I remember being curious about what investing was about, and I started investing personally when I went to the United States for college and was able to open my first brokerage account and started trading.
It was a very interesting time, it was actually during the internet bubble around the late 1990s and it was a very interesting time to learn about investing although I lost what little money I had. That actually even got me more curious about understanding the fundamentals of investing.
I initially worked in Consulting but moved to Goldman Sachs strategy after my business school program. It was at Goldman Sachs I really feel I developed the understanding of the beauty of investment and the underpinning of what drives return and that was an amazing experience for me.
After a few years with Goldman Sachs, I just realised I needed to run my own investment firm and manage money directly for people. It was also an exciting time in Nigeria, this was around 2007 and 2008 and there was a lot going on in the country especially around the stock market. At Goldman that time I was already covering a wide range of asset classes and was very interested in emerging markets.
So I thought of starting a hedge fund. I saw that Africa was doing fantastic with so much global interest and investing in the continent and decided to come back to Nigeria, where I am from and start a hedge fund.
Looking back I believe it was a really bold step I took at that time because I was around 28 to 29 years old and it was not that I had a lot of investing experience at that point but I really just felt like I would be able to do it.
When I came back I realised I needed to get some Nigerian work experience and it was pretty much the beginning of the downturn as the timing was not percent. At that time, however, I worked for Zenith Capital for a bit and was able to eventually start Sankore in 2010. I was truly oblivious of how difficult it was going to be, I was so driven to actualize my vision and I went straight for it and was still determined to start the hedge fund.
However, it was very difficult to raise money and I realised that there was actually quite a big pool of capital that really wasn’t properly managed and it was mostly individual funds and so that for me became an interesting place because I actually stumbled on it by accident, as I said, I was running a company that was set up to run hedge fund and I remember having a client who invested possibly 67 percent of their net worth in our hedge fund.
I didn’t know at that time it was that large an amount because globally the people investing hedge funds are supposed to be sophisticated clients and very high net worth individuals who know what a hedge fund is and the risks involved.
But it made me realise that the level of sophistication even HNI clients in Nigeria are slightly different- I wouldn’t say it is worse-but way they understand investment is completely different because Nigeria has its own uniqueness.
So I just showed me that there was an opportunity to set up a firm to provide investment strategy and guidance to clients whilst helping them invest at the same time.
Q : How has the transition from a developed market in the United States to a less developed one here in Nigeria been, especially in 2009 where Nigeria’s financial services sector was not as developed as it is today?
It was initially a difficult one, and that was why I decided to work in Nigeria first; I did that to be absolutely sure. Even now in my company, it is very rare for me to hire people with only foreign experience because one needs to know how Nigeria works.
One of the big things is when you work in investments in Nigeria you have to know everything end-to-end – especially operational backbone of everything.
In the developed market you do not know all of that and that was actually the big thing for me; coming here, having to understand what a Registrar does, a Custodian does, and so on. Trading abroad is a very different and seamless experience but working in Nigeria requires one knowing much more about the entire cycle of investments and you have to be like the “jack of all trade”. For me that was the transition; having to understand all of the bits and not just focusing on what the market was doing.
For instance, you could invest in a security that makes a lot of sense and just you not having your operational system set up could cause you to lose money. That is one of the reasons we are also passionate about technology here.
We have done a lot in the technology space and even now we are working on a networking platform that is targeted towards people who want to get the same wealth management advice and processes but want it simplified.
We actually just launched a platform called Wealth.ng and our goal here is to give people more of a simple experience with regards to investing.
Like you said, it’s been quite a transition, one in which we are trying to get the operational backend clean in other to give our client an experience that is simple.
Q What has working in Nigeria and trying to learn the Nigerian factor taught you about the domestic financial ecosystem?
Like I said earlier, working here in investment is actually different from doing so outside the country.
Again our work with clients actually varies; even though we are a wealth management firm, we focus on a range of things. We do fund management, we do Trust, we also have a Registrar so our clients fall into different categories, but at the end of the day, our key priority is the Wealth Management need of different individuals but we engage with our clients on many different levels.
Take for example for the former Diamond Bank we actually provided their privileged banking unit with white label investment products. As you know, Universal Banking means that most banks no longer have their own investment subsidiaries and it means that they still have a need to provide some of these services and we have been able to step in to provide white labelled services to them at the backend.
One of the things we have definitely learned is that a lot of Nigerian Financial institutions have very broad offerings but sometimes they may be missingdepth in particular areas and they are aware of this and it is why they are willing to work with firms that can provide them with further depth.
So we actually found in Nigeria that very few banks have a proper private bank based on global standards and it is something a lot of banks are aware of, but they make so much money from the rest of their business and private banking being much more of a long term kind of business is actually something they haven’t focused on.
As you know there are three banks with a group structure and they of course focus on it and do an amazing job at it, but a lot of the other banks that do not focus on this primarily are the ones that we look to help provide a white labelled approach which by the way is in line with global practice.
Globally a lot of wealth management companies and private banks use third-party products. It is only in Nigeria everyone wants to do everything themselves-part of the Nigerian factor.
However, collaboration can actually allow one to provide many more services to clients and keep them happier. These are part of what we try to preach to financial institutions: collaboration and partnerships to provide more to individual customers.
These have been some of the things we have experienced working with Nigerian financial services institutions.
Q From your interaction with clients, what are their greatest concerns in today’s Nigeria and how are you helping them ease some of the worries?
As you know, Nigeria doesn’t have a lot of intergenerational wealth. Our wealth tends not to pass beyond one or two generations whereas, in countries like the United States, about 80 percent of private wealth is inherited. What that means is that our clients in Nigeria are usually the first creators of wealth and generally if you are the first creator of wealth you are more than likely to be an entrepreneur.
Entrepreneurs definitely at this point are majorly worried about economic growth. We are creeping on 2 percent growth rate which is not great for businesses. The major worries have been around economic activities and government policies because Nigeria is very dependent on that as well. Then you see a big focus on that from our clients who are mostly entrepreneurs and can be directly affected by all of those variables.
And of course one of the big policy areas they focus on is the exchange rate, which makes sense if you are trying to build wealth. For a lot of High Net worth Individuals (HNIs), their spending is global; they spend in pounds, dollars and are earning naira which makes it very important to be aware of the foreign exchange policy.
For us what we try to do to help them navigate is just proper planning and provision of information and data and we usually hold monthly investment planning and strategy calls where we give our clients a sense of direction of the macro-economy and policies with regards to how it impacts their wealth and should affect their investment decisions.
We also build investment strategy models that are optimised for their global spending. We recommend them to have a huge chunk of their investment in dollar-denominated instruments, and so on.
We are also encouraging them to look at high yielding instruments in alternatives like real estate and agriculture. It cannot all be T-bills and bonds because otherwise, you are not compensating for potential depreciation risk.
Those are some of the strategies we advise our clients on.
Q You talked about the economy and it brings me to financial inclusion, you represent the wealthiest 1 percent of Nigerians. What do you think the 1 percent of Nigerians should do to bridge that gap?
I am glad you asked that question because it is an area of passion for us. One of the things I tell people is that investing is the key to unlocking wealth both for individuals and nations.
For us, we have a big mission not to make the rich wealthier, but to drive and grow Nigeria’s wealth through the deploying of investment assets.
We do believe that Nigerians, unfortunately, focus too much on what the government should do rather than what we can do ourselves with our investment money. Because of that we strongly believe that HNIs have a very strong responsibility to the country through investment.
We are so much dependent on FDI and we shouldn’t be. Why should, for example, the stock market drop by 20 percent because foreign portfolio investors take their money out? Why dont we have enough people here investing in the stock market?
Of course, there are many reasons for that but part of it is just because of the lack of proper guidance and investment portfolio allocation and so we really do think that there is a strong responsibility on the part of HNIs to solve Nigeria’s problem.
Many of the HNI’s may be interested in legacy building and philanthropy but then most of them want to build wealth for themselves first, so our objective is how to marry both ends and get Nigeria’s HNI to invest in sectors that are beneficial for the economy and their portfolios simultaneously. We often find that some of the best investment ideas do both.
One of the issues we have seen over the last several years of working with HNI’s in Nigeria is that the average Nigerian HNI’s portfolio is underperforming inflation.
If that is the case they are not even feeling that confident in their own wealth building, they are not going to be thinking about building the nation. And the big reason is that too much of the portfolio of most HNIs sit in low yielding real estate assets.
There are a lot of high yielding real estate assets that can be beneficial towards economic growth but unfortunately, the majority of HNIs put their money in 3-bedroom flats in luxury areas and the likes and that is actually not beneficial because rental yields are low at 3-5 percent.
So if you have 50 to 80 percent of your portfolio in real estate and it is low yield real estate, then your total portfolio return even if the rest is in high yielding fixed income, is not going to exceed 6-8 percent, and that means you are not building true wealth for yourself.
There are actually subsectors of real estate, like commercial real estates that are low-income kind of real estate and yield as high as 20-25 percent. We are looking at substituting housing opportunities for our clients that can yield as high as 18-200 percent. Guess what! That is the type of investment that HNIs really should be putting their money into.
If an HNI invests in student housing, that means the majority of students that live in terrible conditions now can afford to stay in better hostels and value would have been created for both parties.
For us, we spend a lot of time trying to think of how to find the sweet spot between where HNIs make more money than they current have-which would incentivise them to keep investing- and there is a benefit to the country.
So for us, that is why we spend a lot of time looking at real estate, agriculture, and venture capital and so on. We consider a lot of alternative investment opportunity to show our client because we really do think there is a strong need to aggregate capital in order to solve our nation’s problems.
Q What are the ranges of assets you offer your clients, and how do you manage risk and liquidity?
It comes back to the core of my discipline which is Investment Strategy to ensure clients have an optimised portfolio. It is just one of the most important things in investing.
You have to understand the client’s risk and return profile in order to suggest them an ideal portfolio allocation and still one of the first things we encourage clients to do is make sure they have a very good portfolio allocation to fixed income and we call that “sleep well money” which allows you to then take risk in other asset classes.
Like I said the majority of Nigerian HNIs have most of their asset and net worth in illiquid real estate.
I have had clients tell me “I am worth two billion but if you ask me to produce ten million now, I cannot.” This is something we hear from a lot of our clients.
Many HNIs in Nigeria have liquidity issues as they hold too much of real estate-the wrong real estate. We love real estate and even have a subsidiary that looks into real estate opportunities but we want clients to look at holding more of the higher yielding real estate and commercial real estates than residential.
Again one of the things we do is make sure clients have a healthy allocation to fixed income. Again the discipline of investment strategy involves you running what we call “optimizers”.
Optimizers involve the historical data of risk and return of different asset classes to help figure out what size each asset class should be in your portfolio. Portfolio allocation is a discipline and should not be based on words of friends and family, it should instead be based on professional advice.
This year, for example, we really like agriculture but it involves some risk which we are working with different organisations to ensure we create products that are as risk mitigated as possible.
So we are partnering with the likes of AFEX which is a commodity Exchange, we are partnering with NIRSAL which helps spread the risk from lending to agriculture.
Again it is down to size. If I think this asset class is going to return 25-30 percent to you, risk and return are again very tightly coupled. If you are getting 14 percent in T-bills, a product with a return of 25 percent would be slightly riskier but if you size it appropriately, that risk over the long term should be minimized.
Q How competitive are your fees, can we get an overview of your performance compared to peers and Asset under Management (AuM)?
We manage about N25 billion currently for clients. We have much more in Assets under Custody. Our AuM is split almost evenly split between naira and dollars.
With regards to our peers, we actually do not currently run any mutual funds. That is a strategic decision because the majority of HNIs do not like Mutual Funds.
We found that most of our clients are entrepreneurs and entrepreneurs are generally very confident on their ability to build wealth and as such do not like structure that obfuscates what you are doing-they like to know what they are investing in. We invest for clients on a case-by-case basis in the specific products that we recommend. So we definitely have more of a portfolio approach.
Very few firms publish their portfolio numbers so it is hard to compare, but I do feel because we do use very rigorous methods, I would be willing to bet we are very close to the top.
With regards to fees, we try our best to be very competitive. Again we see the calibre of firms that clients move money from to us and we try our best to make sure we are benchmarked to those- and it is really all of the top guys, so our fees are generally in line with the industry.
We also try to be a bit more competitive by leveraging our lean structure which is optimised by technology. So we think that because of the use of technology we can definitely afford to keep things as lean as possible.
Q How much do I need to have to be a client of Sankore?
Sankore’s big mission is to aggregate the biggest pool of private capital Nigeria has ever seen in order for us to solve our country’s problems ourselves.
In order to do that, first, we have to be open for everyone. So what we are to trying to do is create multiple offering that meets different people at their points of need. So we have Sankore, the core platform which is targeted at the HNIs. The platform is a bespoke kind of service, and the average person has a minimum of N100 million to be a client.
Then we also have a mass affluent program which is Wealth.ng to offer the services we give to a small group of people to the broader group. The minimum to get started there is N10,000.
What we have been doing is to build a platform where people would be able to access to T-bills, Stocks and some of the Agric assets we have been talking about. Eventually we are also going to list some of the real estate offerings that we have as well. We want anyone to be able to come on and invest because at the end of the day we have to get people to have an investment mentality-that is the only way you build wealth.
Again the wealth of Nigeria is the aggregate of the wealth of its citizens; we actually think it’s a gain to get Nigerians interested not just in savings but also in investment because that is what really grows your pie.
Look at the fact that agriculture requires billions in financing in order for us to feed ourselves. That is actually a simple problem to solve theoretically with investments; why, for example, can all of us not decide to fund our farmers? The default rate of farmers is actually way less than the default rate of consumers and people are investing in consumer finance businesses, so why not Agric?
Then again some of the platforms are gaining popularity now; the likes of Farmcrowdy. It is a great movement which I greatly encourage- us financing and investing in the real sector. For us that is our angle on fintech, we really think we should be solving Nigeria’s problem and we have to go to the most basic industries that are able to hire the most people. It is the only way to build the wealth of Nigeria.
If we know that the government is trying to support rice farming, they are doing a bit of what they can with regards to trying to mitigate the risk of loss and are doing their best.
We have to try our best in providing financing to those sectors. The key thing is with any investment there is certain risk of loss but you cannot make any return if you don’t take risks and that is one issue we have as Nigerians- it is not our fault but we are very short term oriented. So even on our wealth and education platform, we see people asking how much they can make in 30 days, a week and so on.
One of the things we are trying to do is promote financials literacy about investment being a long-term thing. We talk about the fact that you really should not be investing in stocks if you are looking to make money by tomorrow.
We always tell people that their minimum horizon for stocks should be three years. It should, in fact, be five, but in Nigeria, we advise people to start with three before you go into stocks.
Q What advice do you have for young women looking to get into finance and build an amazing career there?
I am actually speaking to a small group of women tomorrow about wealth for women particularly. The reason that is important is the income gap; the fact that women make a little bit less than men. What we do not talk about is infact the wealth gap which is much worse.
The impact of this wealth gap is very negative on women and their children. Women with lower wealth are more likely to be in abusive relationships.
Property rights in Nigeria don’t really cater to women; there are instances where women who lose their husbands cannot inherit the properties. There are just so many reasons why women have to take control of their wealth and it is an area I am passionate about and would be exploring some more over the next few years.
I think it is important for us as women to be very clear that we are different from men. That is a very controversial thing to say because for a long time women have tried to do the exact same thing as men and be treated the exact same way.
The only problem is we have different realities and we can never ignore biology; I have a three-year-old daughter I have to take three to four months off work.
The key is in understanding the wealth gap is causes because the majority of women want to have a family and kids and they will never put their work above their children-which they never should.
So if that is the case, women should think about that even in their career choices.
A lot of women, unfortunately, focus on careers that do not build wealth. The key thing is that it is better or women to pick careers in areas of high expertise, more than flexible jobs because the position of high expertise is much more difficult to dispose of.
So in my company for example, if you are a software developer you need to take three to four months of leave, I would still be waiting for you to come back because I don’t want to retrain a software developer. But if it is another role for which talent can be easily replaced, it would be a different narrative then.
Women globally do better than men at school. Expertise acquisition is not the problem of women, why are we then clustering into positions of low expertise? If you look across the world, most of the positions of low expertise are dominated by women.
Women have to stop that and start looking at those roles that they erroneously believe they are not good enough for.
Remember I said we should all be aware of what makes women different from men; did you know women are better investors than men, but most women do not know that.
In fact, many of the top funds in Nigeria are run by women, but guess what we only know their men bosses. We are living in patriarchy and women are not even aware of our own strengths. We are too fixated on our weaknesses but we have to focus on our own strengths.
Wealth.ng was built by a team of software developers with 50 percent women. I would actually say it is one of the most advanced investment platform in the country and it makes me glad to see women doing great.
We need women to gravitate towards high expertise careers that penalise less when we take time off.
The second thing is we have to invest. You cannot build wealth if you do not invest. Women need to be aware that we are naturally good investors and if that is the case we shouldn’t be worried about getting it. We are naturally good but invest less and it is actually the fact that women are risk-averse that makes us better investors.
The way money works, if you lose 50 percent of your portfolio, it takes 100 percent to come back. So being risk averse actually works really well for investors and investment is one of the high expertise professions that allow women to take time off without severe penalties. So these are the areas that women should really be dominating.
Women should pick careers that are not dispensable and should stop being afraid of things they consider to be male-dominated; they are only so because we allow it to be.
( This interview was done in part by Lehlé Baldé for BusinessDay Media)