Equity markets’ dip rock pension fundsvalue

By Jackson Okoth

The value of assets managed by the pension schemes has been significantly eroded by a poorly performing Nairobi Stock Exchange (NSE) as well as a decline in offshore markets.

A survey by Alexander Forbes Financial Services (EA) Ltd indicates that total value of assets held by some 129 schemes fell from Sh93.4 billion to Sh89.4 billion.
This reflects the decline in the local and offshore equity markets witnessed over the last nine months, between 

June 2008 and March this year.
Over the past one year, return for the average pension scheme fell by six per cent.

There was also a decline in the weighted average annualised return from nine per cent three years ago to six per cent as at end of March this year.

Returns of pension schemes were not spared the ravages of rising inflation, which has remained high and double digit for over the last nine months.

The survey indicates that while overall inflation has remained at 25. 8 per cent over the last one year compared to 17.5 per cent three years ago, average scheme underperformed overall inflation over the two periods.

bearish market
On average, schemes investment in equities decreased to 26.7 per cent while those in offshore markets saw their returns falling to 3.8 per cent.

Surviving bearish market conditions were investments in fixed income and interest bearing instruments where returns rose to 67.5 per cent. Also holding ground was investment in property where returns increased to 2.1 per cent.
This weighted asset allocation in equities and offshore investments decreased to 27.2 per cent and 2.8 per cent, respectively while that for fixed income and interest bearing investments and property investments increased to 64.3 per cent and 5.7per cent respectively.

Although equities and offshore markets are the asset classes performing poorly, local fund managers are not worried.

"What is happening at the NSE is not unique. Most equity markets in the world have been coming down for the last 18 months," Mr Sundeep Raichura, Managing Director, Alexander Forbes Financial Services, told Financial Journal.

He adds that there is no need for panic as there is already a measure of stability, especially in some offshore markets, which have begun to pick up.

portfolio mix
Equities and property are asset classes whose values are supposed to keep up with the pace of inflation.

"In the long run, equities have a place in any portfolio, which should also include a good mix of bonds, cash deposits, offshore investment and property for the large schemes," says Raichura. While equities are often exposed to volatility, this is usually more than compensated by better returns over the longer period.

For those retiring now and had schemes with significant exposures to equities, what they take home has naturally been impacted.

" It is important to switch one’s investment options from volatile to less risky ones, to ensure adequate returns when one finally comes for the benefits," says Raichura.