Pension funds key to long-term financing

Money Markets

Barclays Bank head of investment banking East Africa Raj Shah. PHOTO | SALATON NJAU |   NATION MEDIA GROUP

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• Pension funds are obliged to find investments that not only bring in viable rates of return, but are also of low risk to avoid shortfalls in future in a country that is seeing a relatively high rate of population growth and rising life expectancy.

Huge resources held by pension schemes are the key to funding Kenya’s multi-billion shilling power and infrastructure projects, investment bankers said Tuesday.

But proper structuring by qualified market intermediaries would be required for the projects to ensure commercial viability since the pension funds deal with public money, Barclays’ head of investment banking for East Africa Raj Shah said.

According to the Retirement Benefits Authority (RBA), the pension industry held assets worth Sh696.7 billion at the end of 2013. The assets were held mainly in property, equities, government securities, fixed income and guaranteed funds.

Pension industry regulations currently limit the level of investments in various classes, for example capping that on property at 30 per cent.

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“These funds usually invest in long term projects. The infrastructure projects that the government is looking to invest in are also long term meaning there is a direct match in the investment profile and the funding required to implement the projects,” said Mr Shah. “What we would like to see is how we can mobilise more of these pension funds to come into this investment class.”

Pension funds are obliged to find investments that not only bring in viable rates of return, but are also of low risk to avoid shortfalls in future in a country that is seeing a relatively high rate of population growth and rising life expectancy.

KCB regional head of investment banking Onchi Maiko said lack of credible intermediaries to channel the capital into projects on behalf of the pension funds is a potential setback, although he noted Kenya was getting it right in the quality of its investment banks due to entry of established financial sector players and improved regulatory rules.

“There is gap in this market — the skill set is not there to structure projects in such a way that they are commercially viable. We need to step in as intermediaries to do packaging of projects and issue advisories to the potential investor to make them viable,” said Mr Maiko.

In addition, some pension funds in Africa are held back from investing in infrastructure projects due to governance restrictions imposed by regulators, he noted.

The investment bankers who were speaking at the launch of the upcoming African Securities Exchanges Association conference Tuesday said pension funds can also take equity stakes in infrastructure projects.

The same policy can be applied to get the pension funds to put in more liquidity into the capital markets, said Mr Shah.

“It is a pool of liquidity we can get much quicker and in a very sizeable way as we work to get more retail players in to the market,” he said.