Strong performance of your investment portfolio despite study delays
In the last eight months, we have seen many countries ease the restrictions they put in place to control the spread on COVID-19. Just other educational institutions, our aim is to continue supporting students to be as successful as possible given the current circumstances. This is because we know it is only the brightest students whose knowledge will help speed up the recovery process of our economies in the near future.
While we were waiting for schools to reopen, we collaborated with the Government of Ghana to carry out our annual salary research. Our findings from this research cemented our interest in the quality degree programs we support because these degree programs showed a prudent increase in unemployment when compared with the others. We could conclude that our students are still a valuable investment despite the covid crisis.
We understand it is the priority of the government to ensure that schools reopen as safely as possible. So when the Ministry of Education announced it has scheduled schools to reopen in January 2021, we did not panic because we know our brilliant students will catch up with lost study time once school starts. This late start of the new academic year means that our students may have a condensed academic year in 2021, but we are confident that they will perform well and succeed.
What we have done is to incorporate this study delay into our modelling to give investors an overview of how their investment in our students is likely to perform. We will show how distributions reduce in the near term because of the study delay but increase in later years.
You will find detailed information on this below in the update we sent to our investors a week ago.
Dear Investor,
It is yet the end of another financial year for Brighter Investment and this document will provide you with an overview of the performance of your investment. I’m excited to share the first update I wrote with you, please let me know if you have any feedback! In our previous update, we reported that there was a lockdown and we were uncertain about the future performance of the labour market and the effect it will have on repayments. Although we are still experiencing the negative effects of the COVID-19 pandemic, we are happy to report that your investment in our students continued to perform as expected.
After the lockdown this summer was lifted, the 2020/2021 academic year was scheduled to begin in November. Unfortunately, this has been rescheduled by the Ghanaian Ministry of Education to the beginning of January 2021. The result is that we have not accepted a new cohort yet and this update does not include the numbers for new students we will support for the 2020/2021 academic year.
Although what we hear from our contacts at the ministry is that the plan is a condensed academic year without a summer break, which would prevent any study delays for our students, this has not been announced officially and can still change. That’s why we have incorporated a study delay into our modeling to arrive at a conservative projection of how your investment will perform. The good news is that even if our students take longer to study, graduate, and enter the job market, there will be a small impact on your distributions in the near term, but the effect on the long term performance of your investment is negligible.
We know that the success of our students is important to you, that is why we work hand in hand with you and our partner institutions to ensure that our students are as successful as possible. Please do not hesitate to contact me if you have any questions about the information provided in the following chapters or other aspects of Brighter Investment.
Thank you for investing with us,
Belinda Kugblenu
Head of Investor Relations
1. Investment value
Just like study progress, graduate unemployment and income levels are well within the projected bandwidths. Unfortunately, we do expect students graduating this year and next year to be negatively affected by a general economic downturn. The 2017/2018 cohort with the largest portion of students graduating in these years will be the most affected by an increase in unemployment coupled with low-income levels. We expect them to take longer than usual to find jobs and start making repayments (see chapter 4 for details on how we incorporated the effects of the coronavirus pandemic in our projections).
Concerning our students in the 2018/2019 and 2019/2020 cohort, they are not expected to enter the labour market in large numbers soon so they are less likely to be affected by the general increase in unemployment and the lower income levels we are experiencing.
The table below provides details on the book value of your investment, which is the minimum amount we need to repay to you without BI defaulting on its obligations. The second higher valuation is the net present value of projected future cash flows discounted by the expected total IRR:
Investment amounts, distributions paid out or reinvested in later cohorts, projected values, and book values.
2. Performance of student cohorts
As stated earlier, our current student portfolio does not include the new students we will support for the 2020/2021 academic year. The delay in university reopening dates means that no new students have started yet and that the total number of supported students to date still sits at 388. 223 out of 388 students are still studying and are at different levels of their degree programs. 165 have graduated, 71 out of this number are just starting their mandatory national internship and 45 students are about to finish it with a delay due to the lockdown earlier in the year. 41 students are working full time or looking for work, 8 students have successfully finished repaying.
COVID-19 interrupted the normal study pattern for students all around the world. Just like them, our students also had to adjust to having their lectures and examinations online, many for the first time. But because we focus on selecting the brightest students, they were able to adapt to this new reality and pass their exams.
We continually recognize the importance of encouraging more female students to pursue higher education in the face of all the challenges that come with it. Oftentimes, men have an advantage over women when it comes to higher education, typically, most families tend to spend their limited financial resources on the male child instead of the female child even if these female students' academic performance is better than that of the male. This kind of decision robs women of the chance to build a successful career. A bias with respect to what women are capable of leaves the number of females in the IT and Engineering professions significantly lower than the number of men, robbing women of the chance of pursuing some of the degrees with the best career prospects. With the help of the World University Services of Canada and the D. Keith MacDonald Foundation, we were able to reach out to more women and are on course to attaining gender parity in our portfolio by 2025. Our female enrollment has increased from 10 to 17% and based on the applications we received we look forward to supporting more female students in the coming academic year.
Out of our 223 students who are studying, 32% are pursuing a science degree (mostly applied sciences), 40% are pursuing an engineering degree, 11% are pursuing IT related degrees, and 17% business-related degrees (accounting, finance, business, etc.) The table below represents the current status of all the students we have supported so far.
Current study progress for all investor cohorts.
1. After graduating, students perform national service (a mandatory internship).
2. Continuing students from one cohort are also part of the next cohort (i.e. 3rd year students in 2016 are 4th year students in 2017) that’s why horizontally student numbers don’t add up to the presented total.
Various KPI’s are important for the investor return. For the most relevant of these variables we compare the values used for the projections at the time of your investment to the values as observed to date. Based on these results we use conservative estimates to provide you with an updated ROI projection:
Relevant Key Performance Indicators and values used for our financial projections.
Unemployment: The percentage of our graduate students that were not working this summer has increased from 5% to 8% and will go up further when we include the next cohort finishing their national service. It will go down again when these students find jobs over the next few months. We associate the increase compared to last year at the same time with the general halt on economic activities we experienced around the world due to the COVID-19 pandemic. Although this is not where we want it to be, unemployment remains within the bandwidth used for our financial projections. With the lockdown over, and investments in mining, infrastructure, and IT increasing again, we’re working hard with our mentors and unemployed students to get them back to work as soon as possible.
Dropouts: Our current dropout rate is 0.8% because we have had three of our students dropping out. This dropout rate is 7.5x less than the average rate recorded by our partner universities. One of the students who dropped out has finished making repayments and the other two are making repayments.
Defaults: All graduate students are reporting their employment status, and all working graduates are making their monthly repayments as required. To be conservative, we have modeled a rate of 10% to cover the number of students we expect to not repay.
Salary levels: Graduates earn what we expect in the local currency, and are once again earning what we projected in USD as well. Our graduates have increased their income 5X on average with their degrees.
Repayments: Repayments over the last semester are up to 2.5x compared to the previous semester. More students found jobs and working students earned and repaid more. What also helped is that despite wage levels for graduates overall in Ghana being down, wage levels for the in-demand degrees that we support still increased in value, also in USD, when compared to our salary research last year.
3. Salary research
Every year we send out questionnaires to graduates in order to assess career performance for various degrees. For the first time this year, in collaboration with the Ghanaian government, we have done so for all Ghanaian graduates and not just graduates of degrees we partner with. We’ll share a more in-depth report next year, but the most important findings are:
The results show that science and engineering students have seen the largest increase in starter salaries outpacing both inflation and the GHS - USD exchange rate since our first research in 2014.
Graduates with IT-related degrees have kept pace with inflation and slightly outpaced the GHS - USD exchange rate - i.e. IT graduates earn slightly more on their first job when converted to USD and have a slightly higher purchasing power and saw the largest growth over the last year.
Change in starter salaries for Bachelor graduates over the last years
If you look at all business and commerce students in Ghana, you’ll find a drop in real wages both in purchasing power and USD equivalent. Interestingly, the business-related degrees Brighter Investment actually supports, degrees we deem of high quality and in demand from employers, have maintained their value in USD (important for our investors earning a % of those wages AND important for students that despite the GHS costing less they still earn the same starter wage converted to USD).
And despite the covid crisis, starter salaries for Science and Engineering degrees we support and IT-related degrees have actually increased in USD value since last year’s research.
Of all graduates that participated in our research, at the height of the lockdown 21% of graduates that worked before the COVID-19 pandemic had either permanently or temporarily lost work. For the degrees we support, that number was 13%, which once again shows that the degrees we have selected for support are high-quality degrees in demand by employers and thus offer better job security. The 8% of our bright graduates still working means that they also outperformed their peers with the same degrees.
4. Cash flow projections
The graph below shows how your investment in the various cohorts is expected to perform in the near future. To be conservative, projections are based on increased unemployment (20%), more time required to find work, and delayed graduation due to school closures in the next two years
Projected distributions and paid out distributions (if applicable) for your investments under different scenarios
Conclusion 1, Covid reduces distributions in the near term but increases distributions in later years: In the near future, distributions are projected to be lower when taking into consideration possible delays due to school closures. The economic downturn will also result in students taking longer to find a job. This unemployment earlier on and graduation delays do result in higher distributions in later years, repayment duration is tied to study duration and unemployment actually increases the repayment period by 0.25 months. This means that more students will be repaying in later years and these distributions will be higher than they would have been without the effect of the current crisis.
Conclusion 2, 2019-2020 cohort least affected, 2017-2018 cohort most: Projections for students in the 2019/2020 cohort are least affected by this crisis. The reason is that the first graduated students in this cohort won’t be joining the labor market until the fall of 2021. We expect that economies will have started to recover so that unemployment and income levels will fall from our earlier projections. On the other hand, students in the 2017/2018 cohort are the most affected because they have the largest share of their students entering the job market during the downturn and will be most impacted by possible delays due to school closures.
Conclusion 3, students are still a valuable investment: The results from our salary research show a modest increase in unemployment for quality degrees as well as a growth in our student earnings and thus repayments despite covid. Our students are still a valuable investment now and stand to gain the most from a future economic recovery.
4. Concluding remarks
We may not be able to predict what the job market will be for our students this time, but we know that our brilliant students, armed with value-creating degree programs, will be successful in the pursuit of financial freedom through education.
