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Pension funds eye equities fortunes as bourse rallies

Zamara Group
Zamara Group CEO Sundeep Raichura (left) with head of Investment consulting Neha Datta during a past briefing. FILE PHOTO | NMG 

Pension schemes are looking forward to improved fortunes with one of their most popular asset classes, equities, posting price upticks in reaction to the possibility of rate cap removal.

Equities, mostly bank stocks, have trended up since President Uhuru Kenyatta returned the Finance Bill to Parliament asking for a repeal of a clause controlling pricing of loans.

Investors have priced in the move, which if adopted will also see the price of government paper go up increasing returns for pension schemes, putting them in the right side of investment.

Zamara Pension Scheme report tracking investment portfolios for 2018 showed schemes had invested 71.3 percent of their money in fixed income while 21.9 percent was in equities at the Nairobi Securities Exchange (NSE).

Group CEO Sundeep Raichura said in a phone interview the rally at the Nairobi bourse—that though appeared to cool off Tuesday—if sustained could help pensioners avoid returns below inflation.


“Things are looking up again with possible removal of rate caps. This should improve pension funds results this year,” said Mr Raichura.

The stock market rallied upward in first quarter of 2019 as investors chased dividend-paying stocks.

However, it dimmed in second and third quarters as negative sentiments resurfaced leading to lower valuations.

Last year, the median return for pensioners was at 5.4 percent compared with previous year at 18.1 percent. This was below inflation (5.7 percent), meaning that the contributors’ money shrunk in real terms.

Bonds had an average return of 14.6 percent while equities and offshore assets posted negative returns of 13.4 percent and 13.2 percent respectively.

Central Bank of Kenya data shows pension schemes controlled 28.81 percent or Sh827 billion of the total national domestic debt of Sh2.87 trillion. The World Bank said last week it expects pricing of primary bonds to go up in case rate cap is removed since government will be competing with private sector for credit.

This means pension schemes could allow government to roll over the money at a higher rate or cash in from the NSE rally to invest more in less risky government bonds.

Pension schemes rely on age analysis of its members to make investment decisions that match needs of retiring contributors.