It is no mean feat that the pension industry assets hit Sh1.2 trillion in September, 2018, up from Sh1.08 trillion in December 2017 and Sh912.66 billion in 2016, according to data from Retirement Benefits Authority (RBA).
A pat on the back for fund managers, administrators, trustees and most importantly, employers and individuals who contribute to pension funds.
The economic and legislative environment within which the pension industry operates has gone through fundamental changes.
For instance, fixed income which accounts for the bulk of pension investments and 36.2 per cent of total assets has registered a decline in returns over the last four years.
Market surveys show a 3 year annualised return of 15.3 per cent as at December 2014 compared to 12.6 per cent as at December 2018 for the fixed income asset class. It is also noteworthy that despite legislation enabling investment alternatives, private equity and real estate investment trusts (Reits) account for a meagre 0.04 per cent and 0.09 per cent of total assets respectively. Immovable property and quoted equities on the other hand account for 19.6 per cent and 20.7 per cent of total assets.
Pension funds are faced with increasingly tough economic conditions and volatile financial markets. This calls for trustees and fund managers to look into diversified alternatives by innovatively responding to the challenge of equipping pension funds trustees with knowledge on alternative investments, risk management, incorporating Environmental, Social and Governance (ESG) criteria into capital allocation and portfolio management processes as well as public private partnerships.
The World Bank in 2018 urged local pension schemes to invest in public-private partnership (PPP) projects as the government moves to open infrastructure including roads, utility lines and public buildings as a new asset class for them to invest in.
It is not in doubt that increasing infrastructure financing by tapping pension funds pool will tremendously improve growth rate for each Kenyan.
Design structures
But it can only take the support of the very government, legislation, trustees and industry players, to collaboratively design structures that will allow the private sector to invest in Kenya’s infrastructure needs as well as attract foreign direct investment.
As of 2015, private pension schemes in countries like Brazil, Chile, Colombia, Mexico, and Peru were investing about 2.6 percent of their total portfolios in infrastructure. In the UK, the government is encouraging pension funds to invest in the country’s infrastructure by utilising the billions of shillings held in corporate pension schemes.
Here in Kenya, pension schemes are anxiously waiting for government’s greenlight to channel a significant portion of their Sh1.2 trillion investment in infrastructure by availing investment vehicles for the same.
If proper predictable structures are availed and the ball gets rolling, foreign pension and asset management funds will have the confidence to invest in infrastructure projects.
This approach if adopted will create a win-win-win solution for the government especially at this time when it is in need of funding for its Big Four agenda.
That way pension funds with a long-term view to achieve positive real returns for their members will be easier and the economy of the country as a whole will become stronger.
As pension managers implore the government to look positively at this idea, no one can underscore the strides that have been made in improving knowledge of pension fund trustees and governance of pension schemes through the Trustee Development Program of Kenya by RBA and the governance guidelines introduced through legal notice 193 of 2018.
Pension trustees play a key role and are responsible for making sure that pension funds are run well and members’ savings are secure. Trustees are obliged to exercise their fiduciary duties effectively and diligently failure to which there can be irreparable damage to public confidence in the industry and the economy at a time when the sector in pleading for an opportunity to invest in infrastructure.
Simon Wafubwa, CEO, Enwealth Financial Services Limited.
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