Mansa Musa, the 14th-century West African ruler believed to be one of the richest men who ever lived, has literally inspired a gold rush in Kenya, which is raising eyebrows.
Known as the golden king, Musa is said to have caused gold prices in North Africa to plummet for over a decade after dishing out so much of the precious metal on his pilgrimage to Mecca.
The man, whose empire accounted for about half of the world’s gold at the time, is the inspiration behind Mansa X, a fund started by Standard Investment Bank (SIB) that promises an annual return of 24 per cent.
SIB is Kenya’s only regulated online currency trading manager. Recently, the Capital Markets Authority (CMA) came out to reassure investors that the fund is compliant following murmurs about its promise of huge returns.
This is on the back of rising cases of investors losing money. Before 2017, when the regulator introduced online forex trading regulations, the market was largely unregulated.
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SIB got a money manager licence in 2018, allowing the firm to trade in online forex for clients in all types of classes, including currencies, commodities and global stocks.
SIB Executive Director and Head of Global Markets Nahashon Mungai said even at 24 per cent, the fund has underperformed, as returns of up to 25 per cent are possible owing to its trading in a wide range of global investment products.
“This is because of the fund’s diverse asset class, skill and a model shaped in a way that we can trade long when the markets go up and also short when assets are losing value,” said Mungai. Mansa X trades in more than 100 currency combinations, commodities such as oil, natural gas and coffee and precious metals, including gold and silver platinum.
Added to this are also global stock indices and lucrative stocks such as Apple, Tesla and AT & T.
It was the first fund manager to snap the Gold ETF at the Nairobi Securities Exchange (NSE).
“If we never used to hedge out our positions, our returns would be much higher. Compared to other global hedge funds, we’ve actually underperformed,” said Mungai.
“You have been sold a sob story for too long. Twenty-four per cent in Kenya shilling terms is not that high. If you look at Kenya’s middle-class, real inflation is more than 20 per cent daily,” he added. Mungai further noted that the highest yielding government securities offer 13 per cent long-term yields of up to 25 years. He said the stock market will see most funds make low returns, with real estate also performing poorly.
“People hold liquidity in high regard when times are uncertain. You want cash in the bank in case of anything,” said Mungai.
He said the fund can leverage up to 400 times their asset portfolio, giving them a “significant” edge over local fund managers.
However, they don’t guarantee returns. “I have been in markets long enough to know anything can happen. That’s why I can’t face an investor and guarantee a return no matter how sure I am even if I bought government bonds to protect a downside,” said Mungai.
“We are not going to project a false image on how investments work, but we are constantly busting our heads looking for a return but also watching the downside.”
He said Mansa X’s biggest advantage is liquidity, and every investor gets a financial adviser and can withdraw within 24 hours with the money being put in a custodial account.
“The only client’s money we are risking is the margin that is put across with those liquidity providers,” said Mungai.
He said next year, they would partner with liquidity providers to offer physical shares from companies in the US and the UK. At the moment, they trade single stocks using Contract for Differences (CFDs).
“The same way one buys Safaricom stocks and is able to get dividends, we will be doing that for our investors directly with our partners abroad. We’ve already signed these contracts,” he said.
Previously, Mungai said, the fund had been “small” and couldn’t get contracts when they approached firms like Goldmann Sachs and JP Morgan, but they are now able to access their brokerage units. He said the fund is structured in a way that it strikes a balance between ensuring above-average returns and not taking a disproportionate amount of risk.
“If you only did forex trading, you could make it for some time, but it’s also a highly volatile market so we dampened the volatility by adding a lot of over-the-counter products and cash and equivalent.”
Mungai said in the first year, investors were sceptical and held off to see if they could prove their concept.
The fund now has assets under its management of over Sh2 billion.
“Investors were asking: How come everybody else returns 10 per cent, and you guys return more than double that amount? It doesn’t make sense; you are either lying or taking more than the typical amount of risk,” he said.
According to him, the Covid-19 pandemic “vindicated” their model by showing that even amid volatility, the fund can squeeze returns.
In the second quarter, they offered the lowest annualised return at 16 per cent owing to the adoption of a “defensive” mode due to the uncertainty caused by the pandemic.
“If not for Covid-19, we would have been a much larger fund. At 16 per cent, we are performing better than other funds,” said Mungai.
Mansa X has capped the minimum investor entry at Sh250,000. Mungai said this is meant to target the middle class. The age of investors in Mansa X ranges between 35 and 65. They put in an average of between Sh250,000 and Sh500 million.
Mungai considers the investment banking they do as “sophisticated” and believes that the market has remained traditional yet there is a lot that can be tapped to provide good returns.
He noted that the focus for the typical fund manager has been stock market yields and government securities.