Pension scheme investments in Treasury securities up Sh151bn

Pension schemes have grown their holdings of government securities by Sh151 billion in the past one year as they continue to migrate from the poorly-performing equities market.

The latest data from the Central Bank of Kenya (CBK) shows that the funds today hold Sh532 billion of the securities compared to Sh381 billion a year ago, a 39 per cent increase.

They have outpaced banks and other investor classes in growing their holdings of the debt — with lenders taking up their share by 16 per cent or Sh129 billion to Sh945.5 billion in the period.

The pensions sector now accounts for 28.8 per cent of total government securities in issue — consisting of Treasury bills and bonds, having gone up from 25.7 per cent a year ago.

Analysts say the bear run in the equities market that has persisted for the past two years has informed the shift towards the government securities from equities.

An industry survey conducted by Alexander Forbes financial services shows that the average scheme how holds 75 per cent of its assets in government securities, up from 70.5 per cent a year ago. The holdings in equities have dropped from 25.1 per cent to 19.6 per cent.

“The average scheme’s exposure to equities is shrinking. The main reason for this is the fall in prices of quoted equities caused by poor market sentiment and preference for fixed income investments. Thus the fixed income exposure is higher,” said Alexander Forbes in their quarter four 2016 pensions industry survey released last month.

The survey shows that the schemes had an average return of 14.3 per cent from fixed income investments last year, compared to -9.6 per cent from equities.

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Years of decline
The stock market has experienced two straight years of decline. The main NSE 20 share index shed 21 per cent last year, and is already six per cent down this year.

On the other hand, interest rates on short term government securities have ranged between seven and 12 per cent since last year, while longer-term bonds have offered between 12 and 15 per cent in yields.

Pension funds by nature are long-term investors not given to knee-jerk reactions to markets, although their portfolio managers still do gradual shifts from poorly performing investment classes due to an obligation to show returns for investors through their trustees.

The CBK data shows that among the other investor groups, banks now account for 51.2 per cent of government securities, compared to the 55.5 per cent they held in February last year.

Insurance firms share stands at 7.5 per cent compared to 8.5 per cent last year, while parastatals now hold an equivalent of 5.8 per cent of government securities compared to 4.7 per cent last year.

Other investors, who include individuals, saccos, self-help groups and investment clubs account for 6.7 per cent, up from 6.3 per cent a year ago.

Banks had reduced their buying of government securities towards the end of last year, with traders saying that they had met their revenue targets in the first three quarters of the year.

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“Most tier one and two banks had met their revenue target from fixed income trading by end of the third quarter of 2016, thus seeing them either completely out of the primary auctions or only participating in a small way in the bills segment in the last quarter of the year,” Stanslaus Kimani, a fixed income dealer at NIC Securities told the Business Daily earlier.