Addae-Mensah backs SEC to take on recalcitrant investment banks

Investment banks that are falling foul of the law should be dealt with firmly to serve as a deterrent to others, Kojo Addae-Mensah-Chief Executive Officer of Databank, has said.

“I think it is a very good thing that the Securities and Exchange Commission (SEC) is finally clamping down on investment banks and fund managers guaranteeing interest on investments. It is wrong, against the law, and unethical,” he said.

The SEC has said it is to tighten regulations on Fund Management in the country in keeping up with growth of the sector and increase in market operators over the last seven years. The new guidelines, expected in the coming months, border on issues of fixed deposits, prudential returns and compliance, and full disclosure to investors.

One of the reforms the SEC seeks to introduce in the sector is scrutinising fixed deposits. The Commission is of the view that, by offering fixed returns to investors, fund managers engage in the business of banking – which causes regulatory problems.

The SEC, in May, placed 10 investment banks under investigation and has subsequently warned the public against dealing with them. A statement signed by the Commission says they are under investigation for “numerous pending complaints levelled against them by the investing public bordering on violation of provisions in the Securities Industry Act, 2016 (Act 929)”.

They are MEC-Ellis Investment Ghana Ltd.; Weston Capital Ltd.; Brooks Asset Management Ltd.; Kamaag Kapital Gh. Ltd. (formerly Lifeline Asset Management Ltd.); MAK Asset Management Ltd.; EM Capital Partners Ltd.; MET Capital Group Ltd.; Canal Capital Ltd.; Man Capital Partners Ltd.; and Alpha Cap Securities Ltd.

Speaking in an interview with the B&FT at Databank’s mutual funds annual general meeting in Accra, Mr. Addae-Mensah noted that investment banks – by the way they are structured, do not have the balance sheet strength to be doing the things deposit-taking institutions are mandated to do.

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“Even they (deposit-taking institutions) who have the balance sheets are struggling. We are not supposed to be guaranteeing returns. It has been happening for the past 10 years. This cannot be resolved in a month and we need to find a mutually acceptable way of unwinding the problem,” he said.

He pointed out that by getting tough on these institutions, the SEC is on the right track. He therefore called for more resources and technology-use by the SEC to stay ahead in the industry.

“The new Securities Industry Act, 2016, Act 929, puts almost anybody – including private equities, unit trust, finance houses, fund managers, investment banks, and anybody undertaking any form of financial institution – under them. The SEC needs to use technology to plug into the system and get the data required, so that when they see an anomaly they can zoom in easily,” he said.

Strong performances from investment funds

Databank has posted good performances on five of its investment Funds for the 2017 financial year – the first time that all five funds have performed positively – with the BFund recording the highest performance, followed by Epack.

In 2015 and 2016 some of the funds, such as the Epack, had struggled in their performance owing to the unfavourable economic environment, but results show that they have been able to recover and post significant results in the year under review.

Mr. Addae-Mensah said the bank had faced initial challenges with the rapid decline in interest rates, but added it anticipated that to happen and prepared by positioning itself to take advantage of longer-dated bonds.

He said Databank took advantage of government’s efforts to correct the yield curve and refinance short-term debt with longer-term debts at slightly higher rates.  “We took advantage of ESLA; we took advantage of the 10 year and five-year bonds and that has helped,” he said.

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The B-Fund, which is the best-performing fund of the five, ended the 2017 year at a price of GH¢0.5768 per share – representing a return of 30.91 percent. It also recorded a 43 percent year-on-year growth in its investor base to 15,626 mandates at the end of 2017, while growing its Assets Under Management by approximately 150 percent to GH¢48.11million.

The Epack – although recording a price gain of 37.73 percent to close the year at GH¢3.4078 per share – underperformed the benchmark indices in Ghana at 52.73 percent, and in Nigeria which recorded 42.30 percent.  It however outperformed other African markets such as Bourse Regionale des Valeur Mobilieres (BRVM) and Kenya, which stood at -16.81 and 28.39 percent respectively.

The M-Fund, according to Benjamin Gogo-Chairman of the Board – although seeing a decline in its returns due to the decline in yields of short-term sovereign securities – still posted significant gains, beating the 91-day T-bill benchmark rate to close at GH¢1.0488 per share, a return of 20.55 percent compared with an average annual yield of 14.11 for the 91-day T-bill.

The EdiFund Tier 1, which helps investor cater for short-term education needs, also performed remarkably well against its benchmark – the one-year Government of Ghana note – ending the year at GH¢0.1804 per share and representing a return of 19.30 percent, for which the benchmark stood at 13.35 percent.

The Tier 2, which is for longer-term needs, also outperformed its benchmarks – the GoG one-year note and the Ghana Stock Exchange Composite Index. It ended the year at GH¢0.1753 per share, a return of 20.48 percent.

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