THE KENYAN PENSION FUND MARKET
Presentation by: Nzomo MutukuManager, Research & Development Retirement Benefits Authority
Stanbic Bank, International Investors Seminar,Nairobi January 29, 2007
OUTLINE
This presentation will cover:
! Retirement benefits scheme regulations;
! Retirement benefits scheme investments;
! Future opportunities; and,
! A Question and Answer session
RETIREMENT BENEFITS SCHEME REGULATIONS
All retirement benefits schemes in Kenya must:
! Be registered with RBA;
! Appoint a fund manager;
! Appoint a custodian (segregated funds); and,
! Appoint a Board of Trustees to manage scheme affairs.
In order to eliminate conflict of interest, these institutions must be independent companies.
RETIREMENT BENEFITS SCHEME REGULATIONS - II
To ensure transparency in scheme management, schemes are required to:
! Keep and submit annual accounts to RBA;
! Submit an investment policy at least once in every 3 years;
! Submit contribution returns within 10 days of the end of each quarter; and,
! Submit investment returns after every quarter.
INVESTMENTS
Each scheme should submit an investment policy that has been prepared by Trustees with assistance of an investment advisor. The policy should:
! Adhere to RBA investment guidelines;
! Give the scheme’s investment objectives for the relevant period;
! Consider the scheme’s age profile;
! Specify the fund manager’s discretionary limits; and,
! Be revised every 3 years.
INVESTMENTS GUIDELINES
100Guaranteed funds5Other investments
30Immovable property15Offshore investments
5Unquoted equity70Quoted equity70Government securities30Fixed income (private)30Fixed deposits
5CashMAXIMUM (%)MAXIMUM (%)INVESTMENT CLASSINVESTMENT CLASS
OTHER INVESTMENT GUIDELINES
" Allowance for temporary violations of the maximum
" Max of 30 percent of fund in a particular equity
" Limit of 3% investment in the sponsor (10% for quoted equity of sponsor)
" Investment in “any other asset” requires prior approval of the Authority following application by the scheme.
" Offshore investments limited to bank deposits, government securities, quoted equities, rated corporate bonds and offshore collective investment schemes reflecting these assets.
GROWTH IN ASSETS UNDER MANAGEMENT
Pension Assets Under Management
-
50,000
100,000
150,000
200,000
250,000
Q42
001
Q12
002
Q22
002
Q32
002
Q42
002
Q12
003
Q22
003
Q32
003
Q42
003
Q12
004
Q22
004
Q32
004
Q42
004
Q12
005
Q22
005
Q32
005
Q42
005
Q12
006
Q22
006
Period
Val
ue o
f Ass
ets
(KSh
s M
illi
on)
0
200
400
600
800
1000
1200
Sche
mes
Und
er M
anag
emen
t
Total
Schemes
REASONS FOR GROWTH
Growth of the industry has been influenced by:
! Increasing awareness of the need to save for retirement and of rights of scheme members;
! Trustees’ awareness of their roles and responsibilities;
! Research and best international practice based pension reforms geared at development of the industry;
! Professional management of assets;
! Independence of service providers, which increases accountability;
KENYA’S PENSION FUND ASSET ALLOCATIONS
0%
20%
40%
60%
80%
100%
Q22
002
Q32
002
Q42
002
Q12
003
Q22
003
Q32
003
Q42
003
Q12
004
Q22
004
Q32
004
Q42
004
Q12
005
Q22
005
Q32
005
Q42
005
Q12
006
Q22
006
Period
Ass
et A
lloc
atio
ns
Cash Fixed Deposits Fixed Income Government SecuritiesQuoted Equity Unquoted Equity Offshore Investments Immovable PropertyGuaranteed Funds Other Investments
UK PENSION FUND ASSET ALLOCATIONS
COMPARISON OF ASSET ALLOCATIONS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UK KENYA
Other Investments
Guaranteed Funds
Immovable Property
Offshore Investments
Unquoted Equity
Quoted Equity
Government Securities
Fixed Income
Fixed Deposits
Cash
COMPARISON UK AND KENYA
! UK – increase in property and offshore decrease in UK fixed income
! Kenya – Increase in equity, decrease in property and deposits.
! Maximum recommended property investment curtailed by:
# Incongruent property pricing market in Kenya
# Relatively dormant property market
! Kenyan-based investment strategies for the majority of Trustees
AREAS OF OFFSHORE INVESTMENTS
- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Shillings, Billion
Collective Investment Schemes
Quoted Equities
Bank Deposits
Government Bonds
Corporate Bonds
As at December 2005
AVERAGE SCHEME PERFORMANCE
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
AFCASS M in AFCASS M ax AFCASS Average Inf lat ion 1-year Tbond Rate
Source: Alexander Forbes Financial Services Scheme Survey
Annual Return to September 2006
ASSET CLASS PERFORMANCE - EQUITY! Increasing holdings due to the market’s current bullish
run
! Increased confidence in the market
! Response to the vibrancy of the market through numerous IPOs, splits and rights issues over the past 1.5 years – Kengen, E. A. Cables, Diamond Trust etc
ASSET CLASS PERFORMANCE – GS & FI
! Increasing investment in Government Securities with the introduction of longer-term bonds
! Declining treasury bill rates due to increasing liquidity
SECURITIES YIELD CURVE
Source: Central Bank of Kenya
EXPECTED OPPORTUNITIES - EQUITY
Increasing investment in this asset class as:
! Investors’ confidence continues to grow;
! Pension assets continue to multiply;
! New schemes are registered; and,
! New stocks are introduced into the Kenyan, Ugandan and Tanzanian stock markets
EXPECTED OPPORTUNITIES – GS & FI
! Increased investment as more and longer-term government bonds are introduced;
! New investment opportunities in government securities such as infrastructure bonds
! Introduction of new corporate debt instruments on the public market
EXPECTED OPPORTUNITIES - PROPERTY
Increased activity in the property market with:
! Introduction of the greatly anticipated asset backed securities and property unit trusts;
! Development of the Kenya Real Estate Index (KREX), which is expected to lead to more congruent pricing of property
EXPECTED OPPORTUNITIES – OTHER INVESTMENTS
! Greater investment in this category as more companies issue private debt instruments; and,
! New products are introduced due to the increasing need for investment opportunities for institutions
CONCLUSION
A promising future for the Kenyan Retirement Benefits Sector due to:
! Increasing awareness of the need to save for retirement;
! Focused supervision ad regulation of the sector; and,
! Continued reform aimed at developing the sector.
THANK YOUTHANK YOU
www.rba.go.kewww.rba.go.ke