Pension schemes team up to fund Kenya’s mega infrastructure projects

Lamu Port under construction. Kenya government wants to complete 29 berths at the Port before 2022

By M&M Reporter

Local   pension schemes   have started to   actively seek investment   opportunities in infrastructure development following the proposal by government  to create Public-Private Partnerships (PPPs) as a distinct asset class for retirement benefits scheme.  

Pension schemes are now targeting large-scale investments through pooling resources to maximize returns for their members.

Kenyan Retirement Benefits Schemes collectively holds more than Sh1 trillion, a portion of which could now be directed to infrastructure, once the proposal by the National Treasury Cabinet Secretary Henry Rotich in the 2018/2019 budget to amend the RBA Act is implemented.

Enwealth Financial Services will be hosting a Global Investment Opportunities Conference on 15-22 October  2018 in London offering a forum where institutional investors, pension fund trustees and infrastructure experts in Public Private Partnership projects a forum for learning and sharing practical cases from around the world where pension schemes have invested in PPP projects.

The inaugural Global Investment Opportunities gathering organized by Enwealth Financial Services will also give local pension fund trustees insight into global trends in investment in emerging markets, impact investment and life-stage investment to maximise returns for members of pension funds.

“The purpose is to provide Trustees a practical perspective and an intricate understanding of Public-Private  Partnerships to encourage local players to participate in this alternative asset class.” said Enwealth Financial Services Managing Director, Simon Wafubwa while the conference which will take place on October 15-22 in London.

Enwealth  Financial Services will also engage with global pension  funds that are keen on investing together with local pension funds in Kenya and East Africa.

The National Treasury estimates that the Kenya will require Sh200 billion every year over the next four years to invest in several identified   infrastructure projects under the Big Four Agenda: Manufacturing, food security, universal health coverage and affordable housing. The country, however, continues to depend on unsustainable foreign debt and commercial   domestic borrowing, which is exerting pressure on economic growth.

Economists have said that Kenya’s public debt is expected to hit a Sh5 trillion by June 2019.With the presence of more than 1,300 pension schemes and a membership of over three million, the industry manages assets worth Sh1 trillion by end of 2017. Most retirement scheme currently invest up-to 80 percent of the funds in customary asset classes such as government bonds, equities,offshore, property and only recently have started moving to asset classes like private equity. In 2017 guaranteed funds on average delivered a return of approximately 10 percent while segregated funds delivered an average of 18.7 percent

Local pension schemes have been generally conservative in nature  with a low-risk appetite due to regulatory restrictions.

The Retirement Benefits Authority (RBA) restricts schemes from investing in asset classes that are not spelt out in the gazetted guidelines to limit exposure to risk.

While the addition of the PPP asset class is seen as a significant step to diversifying pension schemes options for investment, the main test will be on the schemes’ willingness to explore this new carrot given that they  are highly conservative and mostly prefer investing in conventional asset classes.

Diversifying investment classes for pension schemes will drive growth of the industry by delivering high-value returns to contributors and also accelerate economic growth in the country.

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