Pension funds have raised their offshore and private equity investments threefold in the past two years, underlining the push for income diversification from equities and property whose returns have contracted.
The huge growth of alternative investments has also been compounded by a low base, given that pension funds have only been allowed to invest in PE since 2016.
Pension funds have raised their offshore and private equity investments threefold in the past two years, underlining the push for income diversification from equities and property whose returns have contracted.
The funds raised their offshore investments from Sh6.32 billion in 2019 to Sh19.4 billion at the end of last year, the latest industry data from the Retirement Benefits Authority (RBA) shows.
Private equity (PE) investments meanwhile went up from Sh969 million to Sh2.96 billion in the period. While alternative investment classes are still dwarfed by the traditional types such as government securities, equities, property and guaranteed funds, they are expected to keep growing as funds seek the higher returns they offer — especially from private equity.
“The offshore investments also continued to record an upward trend…this can be partly attributed to the depreciation of the Kenya shilling against the dollar and the fact that schemes are pursuing diversification due to the stock market volatility,” said the RBA.
“Investment in alternative assets, which is private equity venture capital and Reits, continued to be attractive to schemes due to their diversification effects.”
The huge growth of alternative investments has also been compounded by a low base, given that pension funds have only been allowed to invest in PE since 2016.
Investment in PE firms was previously done under the “other assets” category and carries an upper limit of 10 percent of the total portfolio under the pension industry investment guidelines.
By the end of last year, the asset class accounted for just 0.19 of the industry’s total assets of Sh1.547 trillion, indicating that the segment still has huge potential for funds looking to diversify their income.
PE and venture capital funds normally target returns of up to 25 percent annually when making investments in the region, and usually maintain an investment horizon of between five and 10 years.
Offshore returns meanwhile have picked up in the last two years, driven by better performance in developed market equities and a strengthening dollar.
In 2021, offshore investments gave pension savers a return of 18.5 percent, data from Actuarial Services East Africa (Actserv) shows, beating equities (16.9 percent) and fixed income (9.6 percent).
