Market News

Pension schemes lean on bonds in tough economy

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RBA chief executive Nzomo Mutuku. PHOTO | DIANA NGILA | NMG

Retirement schemes raised their holdings of government securities by 15 percent in 2020 and also turned to property and guaranteed funds as they sought to protect workers savings in a tough economy which saw equities assets hit by the slump at the stock market.

Industry data provided by the Retirements Benefits Authority (RBA) shows that they raised the share of their assets under management held in form of government securities to Sh625.7 billion at the end of 2020 from Sh545.27 billion in 2019.

They also raised the value of their guaranteed funds’ investments by Sh29.1 billion to Sh230.6 billion, while the value of immovable property holdings went up by Sh11.6 billion to Sh251.3 billion.

In contrast, they saw a decline in the value of equities investments by Sh10 billion to Sh218.12 billion, largely due to a fall in share prices at the Nairobi Securities Exchange (NSE).

“The schemes continued to invest heavily in government securities with the asset class accounting for 44.72 per cent of the total assets under management (2019:41.9 per cent),” said the RBA in the December 2020 industry report.

“This was followed by immovable property, which accounted for 17.96 per cent; investments in guaranteed funds which accounted for 16.48 per cent and investments in quoted equities which accounted for 15.59 per cent.”

Overall, the funds under management by the industry grew by 7.7 per cent to Sh1.39 trillion from Sh1.298 trillion in the previous year, slowing down from a growth of 11.3 percent between 2018 and 2019.

The RBA attributed the slower growth to the adverse effects of the Covid-19 pandemic on the economy, particularly in the second and third quarters of last year which saw the country’s gross domestic product record negative growth.

The equities market was particularly hard hit, recording a decline of eight percent or Sh170 billion in market capitalisation to close 2020 at Sh2.33 trillion, while the benchmark NSE 20 share index shed 29.6 percent during the year.

This forced the pension funds to further diversify their portfolios, turning to relatively lesser utilised investment options such as offshore and private equity.

They raised their offshore investments by 80 per cent or Sh5 billion to Sh11.4 billion last year, pushing its share of total assets to 0.81 per cent from 0.49 percent previously.

“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.

Private equity investments, which were allowed by the RBA as an asset class from 2016, rose by 72.3 per cent from Sh969 million in 2019 to Sh1.67 billion last year.