Cautious pension fund managers shunning lucrative opportunities

PHOTO | DIANA NGILA | FILE The NSSF's office building in Nairobi.  NATION MEDIA GROUP

By Nicholas Waitathu
Retirement benefit schemes have registered impressive returns despite shunning lucrative opportunities in both local and international investment segments.

In the first half of last year, the schemes registered a growth of 20.7 per cent to reach Sh522.6 billion, compared to Sh432.8 billion reported in December 2011.

But the Retirement Benefits Authority (RBA) says the schemes could earn more if they ventured into the untapped lucrative economic sectors. “The schemes have not tapped lucrative sectors such as communication, infrastructure, and private equity with the view to realising high returns. Instead they have limited themselves to investments such as Government securities, quoted equities, immovable property, guaranteed funds, fixed income, fixed deposits, offshore investment, cash and unquoted equities,” RBA chief executive, Dr Edward Odundo said.

Odongo attributed this guardedness to fund managers who are evaluated based on their performance, and therefore prefer exploring existing sectors of the economy and maximising their utilisation. 

High risk
As such, the schemes fund managers avoid venturing into other sectors in the economy that are perceived to be high risk.
For example, because private equity is not quoted on a public exchange, the schemes view it as more precarious.

“They fear lack of protection of their assets when invested in the private equity segment,” he added.
Odundo have also avoided investing in segments such as communication and projects touching on energy and water.

“These are very lucrative sectors, which the schemes and other institutions if they tap can attract high returns,” he added.

The National Social Security Fund (NSSF) Managing Trustee, Tom Odongo, agreed that fund managers prefer limiting themselves to traditional investment instead of venturing into other segments.
 
“Retirement benefits schemes fear to expand their investments based on risks associated with the same. For example, those schemes that had preferred offshore investments before the euro crisis lost huge assets,” he said on phone adding the trend has scared investors in spreading out their investments.

Low membership
But some schemes fail to extend their outlays due to limitations on finance mobilisation, brought about by low membership.

For instance, occupational schemes have 350,000 members, while NSSF has 1.4 million members out of a 10 million working class in the country.

Government securities and quoted equities are the most popular of the traditional investment avenues, constituting the largest share of the industry assets with Sh184.1 billion accounting 35 per cent and Sh128.3 billion (24 per cent) invested in each of the asset classes respectively.

Another asset class with a considerable percentage investment was immovable property, which accounted for Sh94.8 billion (18 per cent) of the total assets under management.
Odundo explained that the registered returns amount was composed of Sh381.6 billion that was held by the 16 registered fund managers.

The NSSF held Sh110.9 billion and an additional Sh30 billion of property investments held by schemes but not under control of fund managers. RBA regulations allow the schemes to invest 15 percent of their total assets.