Kenyan pension fund managers are being urged to explore alternative investment options beyond the traditional government securities, as the sector seeks to enhance returns and mitigate risks. Despite existing guidelines by the Retirement Benefits Authority (RBA) that allow for investment across 16 asset classes, the majority of pension schemes remain heavily invested in government securities, which currently account for 51.12% of the total assets under management (AUM), valued at Ksh 1.9 trillion.
Anthony Mwithiga, Chairman of the Fund Managers Association, emphasized the need for diversification, noting that alternative investments are not a new concept but have been underutilized in the Kenyan market. “Alternative investments are as old as the traditional investments. The only thing that is new is that the adoption has taken too long,” he stated. His comments underscore a growing recognition that relying predominantly on government securities may not be the best strategy for optimizing returns and managing portfolio risks.
In addition to government securities, guaranteed funds constitute 20.45% of the AUM, while investments in immovable property and quoted equities account for 11.9% and 8.85% respectively. However, investments in alternative asset classes, such as private equity and Real Estate Investment Trusts (REITs), currently represent a mere 1% of the total AUM. This limited exposure is partly attributed to the perception of these asset classes as risky, as well as a general lack of familiarity among trustees.
Caroline Kodo, Administrator of the Central Bank of Kenya Pension Fund, pointed out that a significant barrier to the adoption of alternative investments is the lack of information and understanding among trustees and fund managers. “Because of lack of information, knowledge, and lack of understanding of these products, most people shy away from them,” Kodo explained. She further highlighted the need for industry players, including the RBA, to educate stakeholders about the benefits and potential of alternative investments.
To address this challenge, the RBA has been called upon to enhance the capacity of trustees through targeted training and awareness programs. Charles Machira, Chief Executive Officer of the RBA, emphasized the importance of empowering trustees to make informed decisions regarding asset diversification. “There are various asset classes that are available. In fact, the final thing is awareness because the people who make decisions are trustees of pension funds, and the trustees also need to be empowered that there are other alternatives, including offshore investments,” Machira said.
The push for diversification is part of a broader strategy by the RBA to increase the total AUM from the current Ksh 1.9 trillion to Ksh 3.2 trillion over the next five years. By expanding investment into alternative asset classes, pension schemes can potentially achieve higher returns and spread their risk more effectively, reducing their reliance on government securities.
The recent two-day Retirement Benefits Sector Convention, which concluded on Friday, provided a platform for key stakeholders to discuss these issues. The convention highlighted the need for the sector to evolve and adapt to the changing economic landscape by exploring a wider array of investment options. As the industry moves forward, the focus will be on fostering a deeper understanding of alternative investments among trustees and fund managers, ensuring that pension funds are well-positioned to meet their long-term obligations to beneficiaries.
With the right knowledge and support, Kenyan pension funds can make strategic investments that not only safeguard assets but also drive growth, thereby securing a more prosperous future for retirees.
Saudi Arabia's Crown Prince Mohammed bin Salman (MBS) made a strong statement on Wednesday, September 18, 2024, reaffirming that the Read more
Germany’s Economics Minister, Robert Habeck, has called for a political resolution between the European Union (EU) and China. His remarks Read more
Russian President Vladimir Putin has signed a decree extending the country's food embargo on imports from Western nations for an Read more
The Tourism Fund is under fire for accumulating Sh3.4 billion in interest penalties due to delayed payments in the construction Read more
The Energy and Petroleum Regulatory Authority (EPRA) has introduced new energy efficiency guidelines aimed at large and medium institutions and Read more
Absa Bank Kenya, in collaboration with global payments leader Visa, has recently launched Kenya's first metal Infinite Card, marking a Read more