NSSF seeks quick sales to reduce real estate assets
Posted Sunday, June 24 2012 at 15:47
A resilient property market and volatility of the stock exchange have exposed the public pension fund to wild fluctuations of its assets portfolio, pushing it into breach of the Retirement Benefits Authority (RBA) regulations.
The National Social Security Fund’s investments held in land and buildings, as a proportion of its entire portfolio, rose from 34 per cent to 39 per cent in the second half of last year against a statutory requirement of 30 per cent.
This, however, was the result of a Sh10 billion drop in NSSF’s stock market portfolio following a bear run at the Nairobi Securities Exchange, as its investment in property remained flat at Sh38 billion.
“This shift in our portfolio results from a dip in the stock market,” said acting NSSF managing trustee Tom Odongo in an interview.
RBA recommends that retirement funds should maintain at least 70 per cent of their portfolio in liquid assets to guarantee payment of pensioners’ claims.
NSSF plans to sell two commercial buildings in Nairobi’s Central Business District to bring the fund into compliance with the RBA guidelines. “When we sell the two buildings the property portfolio will drop substantially,” said Mr Odongo.
“We do not have a specific deadline to comply with the 30 per cent rule, but disposing of the buildings will get us very close,” he added.
An appreciation of share valuations at the stock market could also alter this ratio. Mr Odongo expects that the buildings, Hazina and View Park Towers, will be bought by the government.
While the stock market dipped by about 28 per cent last year on average, as measured by the NSE-20 share Index, the real estate sector recorded strong gains especially in commercial property where value appreciated by as much as 20 per cent, according to Knight Frank.
Mr Fred Nyayieka, the executive director at the Pensions’ Advisory Centre, said that the high volatility in the capital markets was likely to present further challenges to the management of retirement savings.
“Our stock market is very shallow and prone to wide fluctuations,” said Mr Nyayieka.“Schemes like NSSF may be forced to draw up remedial plans on their investment strategy often to remain compliant.”
He added that retirement schemes have a 90-day window to remain non-compliant with the investment guidelines, but could ask for more time from the Retirements Benefits Authority to review their portfolios.
The Housing ministry had sought Sh7.2 billion from the exchequer to acquire the two buildings but it was not immediately clear if the amount had been set aside in the Budget unveiled on June 14.
NSSF has been trying to improve its liquidity by reducing the size of property portfolio under its management, coming close to achieving the requisite threshold in December 2010.