Ten large Kenyan pension funds have formed a consortium designed to pool funds and invest in capital-intensive infrastructure projects.
In order to diversify their investments, the funds have established the Kenya Pension Fund Investment Consortium at a time when the government is revising the asset classes that pension schemes are allowed to invest in to include public-private partnerships, which will enable them to direct their vast resources into infrastructure projects.
“We have made a proposal to the National Treasury to allow for a PPP asset class in which schemes can invest,” Nzomo Mutuku, Retirement Benefits Authority chief executive, told The EastAfrican.
“This will enable them diversify their investment options.”
Mr Mutuku said that RBA supports the formation of the consortium, which will enable schemes to play an active role in helping the government realise the Big Four agenda, particularly affordable housing.
While presenting the 2018/2019 budget in June, National Treasury Cabinet Secretary Henry Rotich called on pension funds and other institutional investors to consider PPPs as a distinct asset class and to partner with the government in enhancing the country’s capacity for developmental investments.
“These funds have the potential to play a critical role in providing local currency financing for PPP projects thereby significantly de-risking projects from foreign-currency funding exposure,” he said.
Sundeep Raichura, Zamara Group chief executive, said that investing together can help to achieve economies of scale, lower costs, lower exposure and risks and confer increased bargaining power.
He said the 10 funds command an asset base of over $1.5 billion, adding that 10 others have expressed an interest in joining the consortium.
“We have also engaged with various stakeholders, including global pension funds who are keen to invest together with local pension funds in Kenya and across East Africa,” he said.
There are more than 1,300 pension schemes in Kenya, with a membership of over three million.
Although pension schemes in Kenya control assets worth $10 billion, 80 per cent is invested in traditional asset classes, partly due to low-risk appetite and partly to the rigidity of regulators, who discourage investing in high-risk, high-return instruments.
Kenyan pension schemes mainly invest in government bonds, equities, offshore, property and only recently have started moving to asset classes like private equity.
Currently, the fixed-income class accounts for about 70 per cent of asset allocation, followed by equities at 24 per cent, property at four per cent and offshore one per cent.
In East Africa, where pension schemes boast of assets under management of $18 billion, only Tanzania has experimented with schemes investing in infrastructure projects. Tanzania’s National Social Security Fund has invested $135 million in the construction of the 680-metre Nyerere Bridge in Dar es Salaam.
The World Bank has been prodding schemes to take an interest in PPP projects. The bank contends that infrastructure needs in Kenya are vast, requiring about $4 billion annually, creating an opportunity for long-term institutional investors like pension schemes.