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Pension funds’ stake in bonds, equities up 33pc
The RBA attributed the growth in assets to a stable macroeconomic environment, pointing to a mix of a stable exchange rate, favourable interest rates, and mild inflationary pressure.
The value of bond and equities holdings by pension funds rose by 33 percent or Sh398.1 billion in the year to June 2025, fuelled by capital gains and higher contributions by scheme members.
Latest data from the Retirement Benefits Authority (RBA) shows that the schemes’ bond holdings rose by Sh318.1 billion to Sh1.33 trillion, while equities investments were up by Sh80.2 billion to Sh255.2 billion.
Bonds and shares saw significant capital gains in the period, helping boost the value of portfolios even as the funds accessed higher inflows from members thanks to higher deductions towards the National Social Security Fund (NSSF).
Bonds and listed shares account for 62.6 percent of pension funds’ Sh2.53 trillion total assets, with guaranteed funds the other major holding at 19.6 percent.
The total assets grew by 27.9 percent or Sh552 billion in the one-year period, having stood at Sh1.98 trillion in June 2024.
These major investment classes take up the bulk of new cash coming into the schemes, with the preference of bonds in particular being driven by a preference for low risk assets by the pension funds.
The RBA also attributed the growth in assets to a stable macroeconomic environment, pointing to a mix of a stable exchange rate, favourable interest rates, and mild inflationary pressure.
“A significant boost came from the NSSF, where contributions rose sharply. This was a direct result of the third-year implementation of the NSSF Act, 2013, which saw the contribution limits increase: the lower limit went up to Sh8,000, and the upper limit to Sh72,000.”
“Quoted equities saw a significant jump to Sh255.2 billion. This performance reflects a sustained market recovery and the positive impact of stable exchange rates.”
In the equities market, the Nairobi Securities Exchange (NSE) recorded a 41.3 percent or Sh706.4 billion increase in market capitalisation to Sh2.42 trillion in the year to June 2025, riding on higher share prices of key blue chips that also form the bulk of pension fund investments in the bourse.
Market capitalisation is the measure of investor wealth at the NSE, being the cumulative valuation of all the listed shares in the bourse.
The valuation currently stands at Sh2.97 trillion, following a continued appreciation in share prices in the second half of the year.
In the bonds segment, pension funds have enjoyed capital gains in the secondary market on papers with high coupons (interest rates), due to their prices going up in line with falling interest rates/yields in the economy.
There is an inverse relationship between bond prices and yields in the secondary market, where an increase in one results in a fall in the other.
When rates on new issuances in the market are going down, investors are reluctant to sell existing holdings (which pay higher interest) since they would earn less returns from new purchases in the market. They, therefore, demand a premium on price if they are to sell their bonds.
Infrastructure bonds that were issued in 2023 and 2024 at elevated rates of between 14.4 percent and 18.5 percent have been trading at a premium on face value, which translates to paper gains by investors when they are valuing their portfolios at present market prices.
The highest premium is on an 8.5-year infrastructure bond sold in sold in February 2024 at a coupon of 18.46 percent. The bond traded at Sh119.82 per bond unit of Sh100 face value, followed by a 6.5-year IFB sold in 2023 at a coupon of 17.93 percent, which is trading at Sh116.55 per unit in the secondary market.
