Pension funds bond portfolio up by Sh107bn

Pension funds have raised their holding of Treasury bonds by more than Sh107 billion in the past 12 months in an apparent shift in favour of the stability offered by fixed income securities.

The latest Central Bank of Kenya data shows that pension funds were holding Sh307 billion worth of government securities as at November 22 this year, compared to Sh200 billion as at November 30 last year.

The pension funds currently hold 26.1 per cent of all government securities against 20.9 per cent they held a year ago.

Analysts say pension funds, traditionally used to holding long-term paper to match their long-term liabilities in form of cash to be paid to retirees who are mostly still in employment, have lately turned to the primary market to shield their cash from inflation.

“A new phenomenon has emerged where fund managers have begun to aggressively bid in primary bond auctions. In some instances they have missed out on long-end bond allocations in a bid to maximise returns on their trading books,” said African Alliance Investment Bank in its latest market report.

The analysts say trustees of various pension funds have been pressuring the fund managers to show better results. This may be due to volatility associated with the stock market.

“(Focus on bond) has been motivated by various factors such as pressures placed on managers to post higher investment returns, CBK’s unpredictability on allocating auctions and past high cyclical inflationary trends that eroded returns on pension assets,” said the African Alliance report authored by the fixed-income trader Alexander Muiruri and research analyst Kariuki Mathangani.

CBK data shows that outstanding government securities were worth Sh958.1 billion as at November 30, 2012, but this had risen to Sh1.177 trillion by November 22 this year.

While the pension funds were increasing their holdings, commercial banks reduced in proportional terms to 48.2 per cent from 52.1 per cent last year.

In absolute terms, the worth of government paper owned by banks rose by Sh68 billion to Sh568 billion, compared to a year earlier.

Banks, therefore, hold the single largest amount on the gilt-edged securities, even though the proportion has reduced.

Parastatals have also reduced their holdings that now stand at 3.6 per cent or Sh42 billion, against 4.7 per cent (Sh45 billion) 12 months ago.

Insurers have kept their ownership of government paper at the same proportion of 10.4 per cent between last November and this year.
Other investors have maintained their holdings at 11.6 per cent.