NSIA 2022 Annual Report: FGF Loses N18.93bn as Operating, Travel Expense Jump

…plus the good, bad and ugly

The Future Generation Fund (FGF), the largest component of funds by assets managed by the Nigeria Sovereign Investment Authority (NSIA), recorded a sizable loss according to its 2022 annual report, a sign that all may not be well with the asset allocation strategy of the Sovereign Wealth Fund.

Losses for the FGF came in at N18.93 billion in 2022, largely as a result of a humongous N41.13 billion net loss on financial assets, as fair value loss on private equity, hedge funds and other securities came in at N32.15 billion.

Meanwhile, for the NSIA as a whole while personnel expense was kept in check as it was down 3%, general and administrative expenses jumped 77.3% to N1.6 billion, while travel expenses increased by 155% to N478.2 million, compared to 2021 levels.

The Future Generation Fund (FGF) is one of three funds managed by the NSIA and was set up to “invest in a diversified portfolio of appropriate growth investments in order to provide future generation of Nigerians a solid savings base for such a time as the hydrocarbon reserves in Nigeria are exhausted.”

Because the fund uses a plethora of active global asset managers (up to 49 different fund managers were counted by MoneyCentral from Goldman Sachs to obscure names like Edgbaston Investment Partners), instead of a simplified index fund or Exchange Traded Fund (ETF), strategy to gain exposure to global markets, it paid higher investment management fees, despite the poor performance.

Investment management fees for the FGF came in at N1.416 billion for the 2022 period, up 19% when compared to the 2021 period.

Operating and administrative expenses for the FGF also surged by 195% to N2.92 billion, despite the loss.

The FGF assets stood at N595.97 billion as at year-end 2022, compared with N374.8 billion for the Nigeria Infrastructure Fund and N60.93 billion for the Stabilisation Fund.

Total assets managed by the NSIA at year end 2022 stood at N1.032 trillion or $2.29 billion (Effective FX closing rate as at 31 December 2022 was N448.55/ US Dollar).

NSIAs Total comprehensive income of N96.96 billion for the year 2022, was down -34%, compared to 2021 levels.

Other highlights from the NSIA 2022 Annual Financial report

The Good: Profit from investments in FMCU, AKTH & LUTH

The NSIA booked infrastructure operating revenue of N3.186 billion representing 100% of revenue which came from its healthcare facilities and profit up 58.3% to N2.26 billion in 2022.

Revenue from healthcare facilities represented revenue from facilities such as MRI, Ultrasound, X-Ray and other laboratory services

Verdict: NSIA managed to turn a profit on its healthcare investments while providing critical social services to Nigerians which is commendable.

The NSIA has invested in healthcare facilities such as the FMCU Advanced Medical Diagnostics Limited, AKTH Advanced Medical Diagnostics Limited and LUTH Advanced Medical Services Limited (LAMSL) established to carry out business as providers of modern medical pathology laboratory, radiography, and ancillary healthcare services.

The Bad : PFI-NPK Limited

The NSIA increased its loan exposure to PFI-NPK to the tune of N23.74 billion in the 2022 financial year, without any equity ownership in the entity.

The subsidiary was sold on 30 September 2021 with effect from 1 October 2021 and NSIA reported it in the prior period as a discontinued operation.

There was a transfer of the business operations of PFI-NPK to the Ministry of Finance Incorporated (MOFI), meaning the entity would no longer be a subsidiary of NSIA but will be owned by MOFI effective 30th September 2021.

PFI-NPK Limited was established to stimulate local production of NPK fertiliser by reviving the local fertiliser blending industry, so as to make fertilisers available to Nigerian farmers and agro dealers at affordable prices.

Verdict: Suffice to say the NSIA should not be loaning funds to an entity in which it has no equity stake in as it is not a lender or bank. Other government entities such as the Bank of Industry (BOI) are better suited for this role.

The Ugly : Metrowaves

The NSIA increased its loan exposure to Metrowaves Sports & Infra Limited to the tune of N4.868 billion in 2022.

NSIA describes the project as involving the development of a 10,000-seater Arena, offering a dedicated space for sporting events, concerts, conferences, exhibitions, and other events.

The project is said to be developed on land plots totalling approximately 25,266.46 SQM in the Lekki area of Lagos. The total project is to cost N42billion and the NSIA has a $10 million (N8.2 billion) or 19.5% stake, with a funding structure that is 43% debt and 57% equity.

Verdict: We struggle to find any major benefit to the nation from the NSIAs investment of $10 million in this entertainment arena project. Delivery timelines are unclear, while the recent naira devaluation has led to an increase in costs for domestic real estate projects.

MoneyCentral could not find any website for Metrowaves Sports & Infra Limited, detailing the current scope of work done and the take-off date.

Finally investing in a sports and conference facility in Lagos which already has many similar alternatives as opposed to toll roads, bridges and other social infrastructure such as healthcare or education looks like a sub-optimal deployment of scarce capital.