By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
In Summary
Pension funds have increased their holdings of
government securities by nearly Sh100 billion this year as they continue
to migrate from the poorly-performing equities market.
The latest data from the Central Bank of Kenya (NSE) shows
that the funds now hold Sh485 billion worth of government debt compared
to Sh389 billion at the beginning of the year.
They now hold 26.9 per cent of the total government
debt of Sh1.8 trillion, compared to January when they held 25.4 per
cent of the debt, which stood at Sh1.53 trillion at the time.
According to data compiled by financial services
firm Alexander Forbes, pension funds had on average 70.5 per cent of
their assets in fixed income at the beginning of the year, 25.1 per cent
in equities, 3.2 per cent in property and 1.2 per cent in offshore
investments.
The holdings in fixed-income instruments have since gone up, as equities came down in the midst of a bear market.
“The average scheme’s investment in equity fell to
22.4 per cent whereas fixed income and property both went up to 72 per
cent and 4.5 per cent respectively. Offshore remains at 1.1 per cent,”
said Alexander Forbes in the 2016 half-year pensions industry survey.
The stock market has since March last year been on a
negative run, with the main NSE 20 share index down more than 14 per
cent year to date.
On the other hand, interest rates on short-term
government securities have averaged between seven and 12 per cent this
year, while longer-term bonds have offered between 12 and 15 per cent in
yields.
Although pension funds by nature are long-term
investors not given to knee jerk reactions to markets, their portfolio
managers still do gradual shifts from investment classes that give low
returns due to the obligation to show returns for investors through
their trustees.
The Alexander Forbes survey shows that the
annualised median return from fixed income by June 2016 was 13 per cent,
compared to a return of -14.5 per cent from equities and -7.1 from
offshore investments.
The pension funds also invest in corporate bonds,
which usually give a higher return in comparison to government
securities due to their added risk.
Their investments in the fixed-income segment are
likely to go even higher before the end of the year given that interest
rates are trending upwards in reaction to the government’s higher
domestic borrowing target.
Last week, the rates on the 91, 182 and 364-day
T-bills was 8.6, 11 and 11.9 per cent respectively, from 8.5, 10.8 and
11.7 per cent the previous week.
The auctions were oversubscribed by 18.9 per cent last week, and by 83.5 per cent the previous week.
“Interest rates have bottomed out and we are
currently witnessing upward pressure on interest rates given government
borrowing for the new fiscal year,” said Cytonn Investments in their
latest weekly markets brief.
The pension funds are second only to commercial banks in lending to the government in the domestic market.
The CBK data shows that the banks hold Sh983.5
billion worth of government debt, equivalent to 54.5 per cent of total
domestic debt.
Others are insurance firms, which have lent the
government Sh137.1 billion, parastatals at Sh95.6 billion and other
investors (who include individuals, Saccos and investment groups) Sh101
billion.
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