Capital Markets

New pact unlocks billions in pension projects funding

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A stockbroker at the Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

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Summary

  • CMA and the Nairobi Securities Exchange (NSE) have inked a pact with pension funds to unlock much-needed long term financing for domestic infrastructure projects.
  • The pact with the Kenya Pension Funds Investment Consortium (KEPFIC) is meant to support their efforts to get into infrastructure funding, which has long been mooted but not actualised.
  • Investing in mega projects would offer the funds a higher return than standard government bonds while broadening their investment portfolio which cuts risk, the CMA said.

The Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) have inked a pact with pension funds to unlock much-needed long term financing for domestic infrastructure projects.

The pact with the Kenya Pension Funds Investment Consortium (KEPFIC) is meant to support their efforts to get into infrastructure funding, which has long been mooted but not actualised.

Investing in mega projects would offer the funds a higher return than standard government bonds while broadening their investment portfolio which cuts risk, the CMA said.

Some pension funds have struggled to find sufficient high-yielding, safe investments to meet their liabilities. The government in previous years sought to find a way to bring the billions of shillings in private money into long-term infrastructure projects as a way of stemming public borrowing. But until this latest pact, there was relatively little progress.

“Through the partnership, NSE, CMA and KEPFIC will seek avenues to deploy pension funds’ investments into infrastructure projects using available capital markets products such as Green bonds, Asset Backed Securities (ABS) and Real Estate Investment Trusts (REITs)," said CMA chief executive Wycliffe Shamiah in a statement.

Kenya needs long-term financing to develop infrastructure projects like power plants, roads and hospitals, and is forced to borrow billions of shillings every year to plug the deficiency.

The Retirement Benefits Authority (RBA) allows pension funds to directly invest up to 10 percent of their portfolio in infrastructure debt instruments.

“There is considerable need to utilise the appropriate capital market structures to finance the development of infrastructure in Kenya, whilst ensuring optimal returns and diversification to investors,” said KEPFIC chairperson Sundeep Raichura.

Pension schemes have the bulk of their assets in government paper and listed equities, with significant holdings in property and fixed deposits as well.