Retirement Benefits Authority chief executive Edward Odundo. PHOTO | FILE
What you need to know:
The pension industry grew at a compound annual rate of 15.6 per cent between 2010 and 2014.
It had assets under management of Sh788.15 billion at the end of 2014, nearly double the asset base of Sh451 million recorded in 2010.
The assets held by pension schemes are forecast to hit the Sh1 trillion mark this year as the industry is expected to maintain the double digit growth rate seen in recent years, Retirement Benefits Authority chief executive Edward Odundo says.
The pension industry grew at a compound annual rate of 15.6 per cent between 2010 and 2014. It had assets under management of Sh788.15 billion at the end of 2014, nearly double the asset base of Sh451 million recorded in 2010.
The RBA is yet to release the industry statistics for 2015 though.
“By the end of this year 2016 with a growth of 10 per cent per annum, the industry is poised to reach the Sh1 trillion mark,” said Dr Odundo last week during the Alexander Forbes annual retirement conference in Kwale County.
A survey for 2015 done by Alexander Forbes on 378 schemes with a total of Sh535.8 billion in assets found that on a weighted-average basis they allocated 30.2 per cent of their assets to equities, with fixed income double that at 61.2 per cent while property and offshore investments took up 7.4 per cent and 1.2 per cent respectively.
The value of pension scheme assets is driven up by various factors, including appreciation of real-estate prices and higher share prices in the stock market that drive up capitalisation.
In addition to the traditional investment classes of property, equities and fixed income, the schemes can add the fast growing private equity space as a fully-fledged investment class.
“This financial year we introduced private equity (PE) and venture capital as a new investment class. Retirement benefits schemes can now invest up to 10 per cent of their portfolio in private equity, venture capital or both, but only in those that are licensed by Capital Markets Authority (CMA),” said Dr Odundo.
Until last year, private equity investment was carried under the other assets category with a limit of 10 per cent of total assets and, the schemes were required to get a ‘no objection’ approval from the RBA when investing in this class.
The CMA is yet to issue guidelines for approval of the private equity funds although it is in consultations with RBA and industry players to develop criteria for licensing the PE funds.
As their asset base rises, the pension schemes will be hoping for better returns this year, with 2015 proving a difficult year for the industry as a faltering equities market ate into returns in spite of fixed income’s continued growth due to higher interest rates.
The Alexander Forbes survey showed that the average return for a scheme in 2015 stood at 0.5 per cent, down from 16 per cent in 2014.
Pension schemes saw their returns from equities come in at a negative 11 per cent, while the returns from fixed income stood at 7.8 per cent for the year ended December 2015.
The negative equities return was due to the NSE 20 share index sliding 21.9 per cent in the 12 month period as the market’s three year bull run came to an end. The market is 2.6 per cent down year to date in 2016.
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