Pension fund returns turned negative in the first quarter of the year as assets took a hit from the downturn in the stock exchange and a weaker shilling that hurt fixed-income investments.
Analysis of pension schemes done by Actuarial Service East Africa (Actserv) shows that they recorded an overall return of -0.6 percent in the period, compared to 2.6 percent in the first quarter of last year.
The Nairobi Securities Exchange (NSE) has been caught in a bearish run this year largely due to geopolitical concerns over the Russia-Ukraine conflict, which has forced rates higher in western markets and resulted in capital flight from smaller markets.
The surveyed schemes have invested 24.5 percent of their total assets in equities while fixed income accounts for 73.2 percent.
“The performance was largely driven by negative returns in equities of -4.8 percent from 5.6 percent in the first quarter of 2021,” said Actserv.
“The negative returns were attributable to a decrease in equities from the first quarter majorly as a result of investor uncertainties regarding global political events and the upcoming General Election in the third quarter of 2022.”
In the first quarter of the year, the NSE 20 Share and All Share indices shed 2.9 percent and 6.4 percent respectively, while market capitalisation was down by Sh167 billion to Sh2.423 trillion in the period.
The market has in the second quarter of the year been bleeding further as high inflation in countries like the UK and the US pushes interest rates even higher, driving foreign investor exits from the NSE.
Fixed income segment returns in the meantime dropped to 1.1 percent in the quarter from 1.6 percent in the first quarter of 2021, while offshore returns were down to -8.7 percent from 0.3 percent previously.
“The decline in fixed income was attributable to tighter liquidity in the interbank market, weakening of the Kenyan shilling and rising inflation,” said Actserv.
Allocations to offshore investments, however, remain low at just 1.98 percent, with many schemes opting for low-risk, long-term local government securities in order to guarantee the stability of funds.
Offshore investments often offer high returns, but come with high risk.
Actserv polled 429 schemes with a total fund value of Sh938 billion—excluding property— in the periodic quarterly survey.