Capital Markets

Pension assets post muted growth amid weak markets


Pension industry assets under management (AUM) grew at their slowest pace in seven years in 2022. FILE PHOTO | SHUTTERSTOCK

Pension industry assets under management (AUM) grew at their slowest pace in seven years in 2022 after an erosion in the value of equities, property and offshore investments in the period.

The Retirement Benefits Authority (RBA) industry report for December 2022 shows that total assets rose by just two percent or Sh28.8 billion to Sh1.576 trillion last year.

This is the lowest annual expansion since 2015 when the assets rose by Sh25.9 billion or three percent to Sh814.1 billion.

The lethargic appreciation of the value of pension-saver assets was mainly due to a Sh39.4 billion contraction in the valuation of listed equities on the books of pension funds to Sh215.24 billion.

Last year, the stock market was hit by sustained foreign investor selling as capital flowed from smaller markets to the safety of the US due to global economic uncertainties partly caused by the Russia-Ukraine war.

High inflation in the West, which forced central banks to raise interest rates, also contributed to the capital flight from emerging and frontier markets, with a globally strengthening dollar also devaluing the returns from these smaller markets.

Volatility in the second half of the year due to the general elections also slowed down the performance of the Nairobi Securities Exchange (NSE), which saw investor wealth fall by Sh600 billion in the period.

Pension funds are among the biggest institutional investors at the NSE, holding billions of shillings’ worth of shares in large listed companies such as Safaricom, KCB and Equity Group.

Read: Pension assets fall Sh33bn on bonds, equities hit

“The marginal growth of the assets during the period is partly attributed to a slow rebound of the financial market after the adverse effects of the Covid-19 pandemic; the uncertainties surrounding the 2022 presidential elections; and the Russia-Ukraine war,” said the RBA.

Government securities investments remain the biggest asset class for pension funds, growing by Sh15 billion to Sh722.04 billion in 2022.

The valuation of bond holdings was, however, negatively affected by rising yields in the secondary market, which rose as inflation also hit Kenya hard.

Bond yields in the secondary market show the rate that investors would be demanding for a similarly tenured instrument were it to be issued anew on the day.

If yields rise, the prices of existing bonds tend to fall as investors tend to push to sell in order to invest in the new high-paying issuances.

Property investments saw a drop of Sh6.1 billion to Sh248.4 billion, while offshore assets eased back by Sh5.3 billion to Sh14.1 billion.

The funds instead pumped cash into guaranteed funds and fixed deposits in a bid to protect returns, raising the investments into these asset classes by Sh38.2 billion and Sh14.4 billion respectively to Sh298 billion and Sh42.2 billion.

Read: Pension funds fail to beat inflation during 2022

Their cash holdings also rose in the period, from Sh9.5 billion to 16.8 billion, indicating that some funds opted to slow down on investing while awaiting more favourable market conditions.

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