Shareholders at a past annual general meeting. Small investors need an association to champion their rights. PHOTO | FILE
What you need to know:
By 2016, retail investors were beneficial owners of at least 25 per cent of the Kenyan stock market, and indirectly a much larger percentage through pension and investment funds.
Small shareholder issues are plenty; illiquidity, market access, mutual fund fees, and legacy issues among others.
It is beyond doubt that the individual investor is an important contributor to the capital markets.
In April 2008, Royal Bank of Scotland (RBS) asked its shareholders to inject Sh1.5 trillion into the lender to strengthen its reserves after it led a consortium that spent Sh6 trillion on an acquisition.
The deal proved toxic and, just months later, the value of RBS shares plunged 90 per cent and retail investors cried foul. Apparently, the bank had concealed its problems in the prospectus misleading investors into a costly acquisition.
As a result, investors (supported by the UK’s shareholders’ associations) are now pushing the bank to create a shareholder committee to prevent a return to the poor practices that led to its near-collapse.
Methinks, for all the recent corporate scandals, if you are a Kenyan retail investor and are reading this, you’ll need to bust a similar move. But, first things first; small shareholders need to band together and form an association. Here’s why this is important.
First of all, retail investors are important players. By 2016, they were beneficial owners of at least 25 per cent of the Kenyan stock market, and indirectly a much larger percentage through pension and investment funds.
They also accounted for 95 per cent of equity shareholders and 75 per cent of corporate bond holders, according to the CMA’s 2016 quarter four statistical bulletin.
With such a powerful broad base, retail investors can weigh in to support the principles of good corporate governance (through shareholder committees). Private investors (not institutional investors) can let the association do the job for them through dialogue and formal shareholder proposals to work on making companies stay on track and behave.
Secondly, the association is needed to represent the interests of private investors in public bodies. Many of the faults in the Kenyan share investment scene arise from the private shareholders having no voice.
It is a pity that small shareholders investors lack representation yet other market stakeholders are well represented – Fund Managers Association (FMA) and Kenya Association of Stock Brokers and Investment Banks (KASIB).
Small shareholder issues are plenty; illiquidity, market access, mutual fund fees, legacy issues et cetera, the list is endless. For these to be addressed, small shareholders need to lobby with one voice.
Third and last, the body can provide a platform for investors to network, learn and grow together. On this point, developing members’ investment skills – from selecting a stock broker and mutual funds, constructing a portfolio, selecting and monitoring investments, attending annual general meetings on behalf of members and giving legal advice to members – should be a crucial objective.
Furthermore, through the organisation of market clubs, theme days, company visits and possibly opening of county offices - it’s a shame they’re no intermediaries/agencies in most of the counties - the country can hope to be truly shareholding nation.
To top this, a youth wing to woo the “betting” YOLO (You Only Live Once) generation will be an absolute must.
It is beyond doubt that the individual investor is an important contributor to the capital markets. It’s time for the almost 1.3 million local retail investors to act and work together.
In the words of the UK’s Prime Minister, Theresa May; we need to make capitalism work for everyone. Through an association, this can be realised.
