Local pension schemes will have to diversify traditional portfolios as returns on investment shrink, Kenya’s largest fund manager said Thursday.
PineBridge Investments East Africa chief executive Jonathan Stichbury said diversified portfolios will expose funds to a variety of asset classes, making their investments more resilient.
“The average pension fund in Kenya is still predominantly focused on local equities and fixed income investments as is evidenced by the Retirement Benefits Authority (RBA) report which shows that well over 50 per cent of pensions are allocated to these asset classes,” said Mr Stichbury.
“It makes sense to diversify and diversification can take place by investing in a variety of asset classes including property, private equity, fixed income, equities and so on.”
He was speaking in Nairobi when Pinebridge hosted a property symposium that brought together industry players to chart the way forward on the property business and discuss pertinent issues in regard to opportunities, gains and losses in the sector.
Equities have proved a disappointment, especially in the last two years, with the Nairobi Securities Exchange falling to the lowest level since 2009.
“There is no doubt that the equities market has disappointed over the two years… We have the General Election coming later in the year and that may or may not make investors cautious in regard to investing in what we may regard as risky assets,” Mr Stichbury told the Business Daily on the sidelines of the event.
Investors have lost over Sh654 billion in paper wealth during the latest bear run. Analysts expect equities will be flat this year, weighed down by concerns over the elections and the US Federal Reserve base rate hike.
“The equity market is clearly digesting the banking amendments but we are not saying that it is dead and buried,” said the cash manager. A 2015 survey 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 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 returns from fixed income stood at 7.8 per cent for the year ended December 2015. Mr Stitchbury however, said despite the negative events things were looking up for the country.
“The reality is that the economy is performing very well. The IMF predicted that the economy will grow by over six per cent this year which on a global basis is excellent. Furthermore, inflation is excellent and we are seeing the development of infrastructure in the years ahead,” he said.
During the symposium, Knight Frank Kenya head of agency Anthony Havelock said the entry of multinationals in Kenya had spurred the rise of investment in grade office space developments.
“Kenya’s development market has matured,” said Mr Havelock.