The Kenyan pension and fund managers have decided that they will be establishing a consortium that will jointly gauge the assets in which they will invest their clients’ money.
The resolve, which happens to be a strategy to safeguard their interests, looks forward to enhancing their investment decisions by ensuring that they have a significant impact when it comes to the economy.
The strategy happens to be a component of the resolution that has been reached by capital managers recently. This resolution got to be made after a meeting was organized by the Association of Pension Trustees and Administrators of Kenya, Aptak.
It is well to be noted that the meeting was joined by pension as well as fund managers, investment bankers, brokers, and representatives from the National Social Security Fund- NSSF and the Nairobi Securities Exchange- NSE.
The decisions when it came to the round-table meeting were made in response to the dipping performance of the capital markets, which could be attributed to the departure of foreign investors who have been drawn to the enhanced interest rates that have been offered by the US dollar.
Aptak’s President Hosea Kili expressed that the purpose of the meeting was to, in a strong way, involve industry players and collectively generate ideas so as to address the challenges that are currently being encountered. According to him, market performance has gone on to prominently decline because of the high-interest rate system as well as capital flight by foreign investors. He also mentioned that the industry’s decision to get in touch with the market as a consortium investment is aimed at making sure of impactful investments.
All decisions pertaining to which assets the industry will invest in will be made at this point and subsequently given a nod by the players. He also stated that all pension schemes will go on to reach an agreement through the Board of Trustees before making targeted investments that are expected to have a positive impact on the country.
It is well to be noted that real estate happens to be a popular investment option in Kenya, with fund managers often targeting assets like Real Estate Investment Trusts- REITs, bonds, as well as stocks. Kili says that the sector, in all likelihood, will shift its focus towards long-term investment options because of a regulatory issue that mandates fund managers to submit quarterly reports. This points out that they have a strong intention to make long-term investments, which can go on to create a significant amount of pressure. This is having an impact on both fund managers and customers, he stated.
The Chairperson of the Fund Managers Association, Patrick Kariuki, stated that this approach will help them to be in sync with the long-term goals of the government as well. He stated that one of the main criteria of the Bottom-up Economic Transformation Agenda- BETA is to achieve affordable housing, which happens to be one of their key goals.
Chief Operating Officer of NSE, David Wainaina, expressed his belief that the exchange had gone on to make its case for preference and believed it would be taken into consideration.
These individuals happen to be the owners of capital, he stated, and the strategy has been thoroughly tested and proven effective. The resolutions will also include the establishment of a task force, which will consist of industry players. This task force will work in tandem to develop solutions that can be offered to regulators for potential approval. The current amount of Sh1.6 trillion under Aptak’s management has been revealed, although it remains unclear how much this move is actually going to unlock in the market.
It is worth noting that the Retirement Benefits Authority- RBAÂ provides investment regulations and policies that guide pension fund investments. For instance, immovable property and Reits incorporated in Kenya and approved by the Capital Markets Authority- CMAÂ have a threshold of 30%.
Private equity and venture capital are limited to 10%; debt instruments for infrastructure are limited to 10%; fixed deposits are guided by the Banking Act and limited to 30%; listed corporate bonds, mortgage bonds, and fixed income instruments are limited to 20%; and commercial paper is limited to 10%.
Pension funds come with an option to invest in East African Community Government Securities as well as infrastructure bonds that happen to be issued by public institutions. These investments can have an exposure that ranges from 90 to 100%. As per a recent industry report from RBA, retirement benefits assets under management went on to experience a prominent increase of 8.09%. The total value of these assets increased from Sh1.6 trillion in December 2022 to Sh1.7 trillion in June 2023.
As per the September 2023 report rolled out by RBA, the rise in assets during the period can be partially attributed to two elements. Firstly, it was an increased funding for the mandatory scheme, NSSF, which came into light in February 2023. Secondly, offshore assets performed better because of certain fluctuations when it comes to exchange rates.
According to the report, the majority of the assets that totaled Sh1,598.68 trillion, were held by the fund managers as well as approved issuers Apparently, these assets under management had NSSF funds totaling Sh261.65 billion. Mr. Kili did point out the adverse impact on the economy when pension funds invest heavily in government paper. However, despite this concern, the RBA report points out that this asset class remains profitable for the industry, with current returns at 18%.
As per the report, the quoted equities went through a dip of 19.14% in growth. The investments declined from Sh215.24 billion in December 2022 to Sh174.05 billion in June 2023.
Negative growth
It is well to be noted that the corporate bonds listed went on to see a dip of 3.64% in growth, as their assets went down from Sh7.82 billion in December 2022 to Sh7.54 billion in June 2023. Similarly, immovable property also saw a very thin decrease in growth of 0.85%, with investments dipping from Sh284.42 billion in December 2022 to Sh246.31 billion in June 2023.
The schemes maintained a major funding in government securities, representing 47.79% of the total assets under management. As per the report, the next category was guaranteed funds, that made up 19.19% of the total.
Investments in immovable property as well as quoted equities made up 14.46% and 10.22% of the total assets under management, respectively. The report highlighted that the majority of investments saw a growth in the first half of the year, with the exception of quoted equities, immovable property, as well as listed corporate bonds.
The investment trend is moving towards assets which happen to be considered to be safer or less volatile, such as government securities, guaranteed funds as well as fixed deposits. The amount of money invested in fixed deposits happen to see a major increase of 60.25%, from Sh42.23 billion in December 2022 to Sh67.68 billion in December 2023. Similarly, offshore investments also saw growth, rising from Sh14.13 billion to Sh23.13 billion in June 2023, representing a 63.65% rise.
Investments in various alternative assets like private equity and venture capital, remained quite appealing to schemes because of their diversification effects. During the period, these investments also saw an increase of 50.76%, going from Sh3.56 billion in December 2022 to Sh5.37 billion in June 2023. The investment in the Laptrust Imara Income Trust, which amounts to Sh6.92 billion, was previously classified under the any other assets category, as per the report.
It goes on to forecast that retirement benefit assets will witness an increase in the second half of 2023 because of the recovery of the economy, which has shown resilience despite the negative impacts of both domestic as well as external shocks.
However, the progress is anticipated to be slow as a result of the high interest rates and also an exchange rate that looks pretty fluctuating. The regulator states that the schemes are anticipated to be go ahead with investing in alternative assets because of the broadening of permissible investment categories. Additionally, they are also anticipated to capitalize on government infrastructural projects.
