Pension funds cut stock holdings to 11-year low of Sh145 billion

Pension funds cut their holdings in listed shares (equities) to an 11-year low of Sh145.1 billion. 

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Pension funds cut their holdings in listed shares (equities) to an 11-year low of Sh145.1 billion in the year ended December 2023, signalling reduced allocation to this asset class besides the impact of lower stock prices in the review period.

New data from the Retirement Benefits Authority (RBA) shows that retirement schemes' investment in the stock market fell from Sh215.24 billion a year earlier.

The disclosure of the latest holdings marked the lowest level since 2012, coinciding with the continued bear run at the Nairobi Securities Exchange (NSE).

The schemes' total assets under management in the review period however grew faster than in 2022 at a rate of 9.47 percent despite the fall in equities investments and five other asset classes including immovable property, listed corporate bonds, unquoted equities and commercial paper.

“Comparing the year-on-year performance, quoted equities and unquoted equities recorded the highest negative growth of 32.56 percent and 27.16 percent,” RBA states in its latest industry report.

“On the other hand, there was a movement of significant positive growth in fixed deposits, offshore investments, private equity and venture capital, and cash and demand deposits.”

The schemes gravitated towards lower-risk assets in the period including stockpiling government securities despite the re-valuation of the debt instruments which resulted in unrealised or paper losses for the pension funds.

At the same time, the schemes raised their appetite for offshore investments amidst a weakening Kenya shilling with the allocations serving as a hedge to forex losses.

“The significant growth in offshore investment is attributable to the exchange rate movement where the shilling had considerably lost value against the dollar hence making offshore investments more attractive,” RBA adds.

Offshore investments rose in the year to reach Sh27.1 billion in assets from Sh14.13 billion previously.

The move away from equities by the pension schemes came amidst a 27.5 percent dip in the paper wealth of NSE investors as the bourse’s market capitalization fell to Sh1.439 trillion from Sh1.986 trillion at end of 2022.

The erosion of investor wealth in the equities market was characterised by the prolonged exit of foreign investors alongside the rise of fixed income as interest rates on government securities soared.

So far in 2024, the NSE has marked a change in fortunes with the market recording a year-to-date return of 12.8 percent in Kenya shilling terms, with investor wealth improving to Sh1.623 trillion as of Tuesday this week.

The change in tide may inform a return of pension schemes to local equities which would further lift the recovery of the NSE in 2024.

The schemes are allowed to invest up to 70 percent of their assets under management in equities but the portfolio stands depressed at just 8.4 percent.

Government securities remain the favoured asset class for pension funds with a portfolio share of 47.5 percent ahead of guaranteed funds at 20.8 percent and immovable property at 14 percent.

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