Capital Markets

Pension schemes reduce stakes in risky investments

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A Nairobi Securities Exchange staff. FILE PHOTO | NMG

Uncertainties over returns led pension schemes to hedge against possible shocks by spreading their investments more evenly across the major asset classes in the third quarter of the year, an industry survey shows.

The third quarter pensions survey by Actuarial Services East Africa (Actserv) shows that a majority of schemes have adopted a ‘moderate risk profile’, which has a near balanced split between interest bearing and non-interest bearing asset classes.

The non-interest bearing assets comprise equities, offshore and property whereas the interest bearing assets include government securities, fixed and time deposits, commercial paper, corporate bonds and call deposits.

Moderate risk schemes are those deemed to have a more balanced portfolio, putting in up to 45 percent of their investments in non-interest bearing assets.

Aggressive schemes invest up to 70 percent of their assets in non-interest bearing assets, while conservative schemes op for the opposite, putting in just 20 percent of their investments in such assets.

“Our findings still show that majority of the schemes participating in the survey have a moderate risk profile, where the asset allocation in a combination of equities, offshore and property is between 21 and 45 percent,” said Actserv in the report.

Sixty percent of small pension schemes have adopted a moderate risk investment strategy, as have medium-sized (66 percent), large (73 percent) and mega (53 percent).

The stance is borne out of the recent volatility in returns, especially in equities, which did well in 2017 only to turn sour this year.

Government securities, which account for the bulk of industry investments, have tended to be more stable in returns, but other fixed income investments such as bank deposits face uncertainty now that the deposit rate floor was recently removed through amendments carried in the Finance Act 2018.