Kenya’s Biggest Pension Fund Turns to Private Equity for Returns

  • National Social Security Fund also mulls investments abroad
  • Fund’s change in focus comes after returns of 3% in 2015

Kenya’s largest pension fund is turning to private equity and seeking investments abroad to boost returns rather than relying on a traditional strategy of buying and holding assets.

“We try our best to optimize our profit,” National Social Security Fund acting Managing Trustee Anthony Omerikwa said during the fund’s Annual General Meeting in Kenya’s capital, Nairobi, on Friday. “We are even looking to going into private equity if that is what will give us more returns to our members.”

Assets under management at the fund, which has 1.7 million members, increased 12 percent to 172 billion shillings ($1.7 billion) at the end of 2015 compared with a year earlier, the NSSF said in its annual report. The change in focus comes after the fund posted returns of 3 percent in 2015, compared with 7.5 percent in 2014. It also follows retirement guidelines released last year that allow pension funds to invest as much as 10 percent of their assets in private equity and venture capital to diversify holdings.

“We are looking at very many private equity firms,” Omerikwa said. “We have gone through a very rigorous process for some, but we have not zeroed in on any. It is an ongoing process.”

New Classes

Pension funds have been slow to move into new asset classes because the Retirement Benefits Authority and Capital Markets Authority haven’t completed drafting the requisite regulations. According to Alexander Forbes Group Holdings Ltd. research, 95 percent of the 814 billion shillings in Kenya’s pension industry are invested in fixed income and equities.

The industry expanded 3.3 percent in 2015, according to data from the Retirement Benefits Authority. That follows an 11 percent decline in the Nairobi Securities Exchange All Share Index last year and local-currency fixed-income returns of 5 percent, according to data compiled by Bloomberg.

“We need investment returns that beat inflation with at least 4 percentage points on a year-on-year basis and beats set targets to allow contributors to have a decent benefits when they retire,” Alexander Forbes Kenya Chief Executive Officer Sundeep Raichura said.

The low correlation of private equity to stocks and fixed income helps to enhance returns, said Ayisi Makatiani, CEO of Fanisi Venture Capital Ltd. Private equity firms can also help pension funds match the long-term profile of their obligations, he said.

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