Pension assets in government debt hit Sh1 trillion amid diversification push

Hosea Kili, Managing Director/CEO CPF group, during the launch of Salih Shariah Compliant Retirement Fund. [Wilberforce Okwiri, Standard] In his comical self, CPF Group managing director and chief executive Hosea Kili narrated how his wife was uninterested in an offer to invest their 'chama' money in the financial company he manages. "She calculated the returns we are giving and compared it to what they charge each other, and she said, 'You cannot compete," said Kili. Amid the chuckles from wealth management experts in the room, who were attending the Taifa Pension Fund financial release, one of the products under the CPF Group, Kili maintained that it was time for financial companies to move away from government paper and consider novel products. He listed betting firms and chamas. However, the latest data from the regulator shows pension assets in government paper shot almost 30 per cent in 2024, hitting Sh1 trillion. This is the highest growth in the last four years. Retirement Benefits Authority (RBA) Statistical Digest 2024 data show that in previous years, the average increase in pension assets in government securities was nine per cent. In 2024, investment in government securities stood at Sh1.08 trillion, representing a 28.5 per cent growth, which accounts for 48.5 per cent of pension assets under management. In 2023, this figure was Sh814.4 billion, Sh745.1 billion in 2022 and Sh679.6 billion in 2021. "In 2024, retirement schemes investments totalled Sh2.23 trillion, with the largest allocation, 48.5 per cent directed to Kenya government securities, reflecting a preference for low risk, stable returns," says RBA in the report. This increase was also synonymous with the kind of returns National Treasury was offering on bonds and Treasury bills that averaged 16 per cent. The same products are now attracting an average return of eight per cent. RBA confirmed this, noting that the high allocation to government paper is largely driven by the perceived low risk and relatively attractive returns offered by government securities, particularly in recent years, leading to schemes increasing their investment in government securities. "While traditional investments, such as government securities and guaranteed funds, have gained prominence, there is also a noticeable diversification into offshore and alternative assets," the regulator says. Investment in guaranteed funds is the second leading asset class with 20.8 per cent, while immovable property and quoted equities accounted for 10.7 per cent and 8.5 per cent respectively. "The remaining asset classes, including fixed deposits, offshore investments, and alternative assets like private equity, each held smaller shares, indicating a diversified but conservative investment approach," says RBA in the report. Investment in offshore products increased from Sh24.6 billion in 2023 to Sh31.3 billion in 2024. Unquoted equity improved from Sh7.2 billion to Sh13.4 billion, while private equity and venture capital went up to Sh7.9 billion from Sh4.2 billion. Government securities, guaranteed funds and quoted equity are the three asset classes with the top three highest statutory limits for schemes to put in their money at 90 per cent, 100 per cent and 70 per cent, respectively. Investment in government paper stands at 48.5 per cent, guaranteed funds 20.8 per cent and quoted equity 8.5 per cent. The low level of investment in quoted equity does show how unsettling it is for schemes to invest in businesses, even when there are structures such as the Nairobi Securities Exchange (NSE). This is similar to unquoted equity, where investment stands at 0.6 per cent despite a statutory limit of five per cent. Kili argues that beer-making companies such as the East African Breweries (EABL), which is listed and betting firms, which fall under unquoted equity, provide better opportunities for diversification. "SportPesa, the other day, gave Sh400 million (Sh424 million) to a young man. How much remained behind for them?" he posed. "If we are a shareholder in such a company...I am not an investment analyst, although I am an honorary one, but you guys are sleeping." Kili said the spending habits of Gen Z should guide investors where the money is. "Don't be traditional," he said. "Don't cheat me that there can be another economy which is operating and we are not taking advantage." At the launch of Taifa Pension Fund, Jubilee Holdings Group Chief Executive Dr Julius Kipngetich emphasised the need to consolidate the pension sector, saying the idea of putting members' money in government paper is not sustainable. "We have to rethink where we are putting our money. We need to sit together as the pension industry, probably to seek an alternative investment. We can't be throwing money in government securities," said Kipngetich at the launch late last year. "As the Cabinet Secretary (National Treasury) is thinking of how to shrink government spending so that interest rates come down, we also need to think of alternative investments." Investment in government securities, as earlier noted by Britam Asset Managers Portfolio Manager Eric Karanja, is associated with the country's increasing obligation to pay retirement benefits. "RBA allows us to invest up to 90 per cent on bonds, up to 70 per cent on (quoted) shares, but you can only do up to 15 per cent offshore," he explained. "There is also the issue of a lot of workers gaining, especially in government, and you need to be liquid."

Pension assets in government debt hit Sh1 trillion amid diversification push

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