The Kenyan government plan to tap into pension funds to finance infrastructure projects appears uncertain, with fund managers saying it is a highly risky investment.
In efforts to reduce dependence on debt, the government has identified the $15.3 billion pension funds as a potential financing alternative for projects under the Big Four Agenda.
The government reckons that pension schemes can pool funds to be directed towards the Big Four projects — manufacturing, food security, universal health coverage and affordable housing — under the public-private partnership (PPP) model.
AMENDMENT OF GUIDELINES
“There is a pipeline of opportunities to invest under the PPPs programmes and pension funds can benefit from the stable and attractive long-term returns that can be obtained by investing in infrastructure PPP projects,” said Stanley Kamau, National Treasury acting director-general for Public Investments and Portfolio Management.
To actualise the plan, the Retirement Benefits Authority has come up with guidelines for a PPP asset class capped at 15 per cent.
Although the guidelines have not become law yet, it has emerged that enthusiasm by pension fund managers to invest in infrastructure projects has waned over fears that it would expose retirees’ money in projects whose returns are largely uncertain. This is informed by the fact that despite being risky, infrastructure projects are complex in structuring and returns are mainly long-term.
The EastAfrican has learnt there has been a standoff over the PPP asset class and that a number of fund managers have developed cold feet in investing in infrastructure projects. This has made it impossible for the National Treasury to push for the amendment of investment guidelines to include the 15 per cent PPP asset class.
It was not lost to observers that while unveiling the 2019/20 budget speech 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.
Shem Ouma, RBA chief manager and head of research and strategy, has admitted that lack of success in any PPP project is one of the reasons pension funds investment in infrastructure has been capped at 15 per cent to protect retirees’ money.
“Pension funds cannot be invested in social or affordable housing. The new investment class for pension schemes to invest in infrastructure projects under the Big Four Agenda is capped at 15 per cent to protect pension funds and is still under discussion,” he said.
NEED FOR CONSORTIUM
Revelations that pension schemes are no longer interested in infrastructure project puts the government’s plans to mobilise funds particularly for affordable housing in jeopardy considering it was banking on the schemes to fund construction of the 500,000 housing units promised under the Big Four Agenda.
Despite the standoff over the PPP asset class, Zamara Group chief executive Sundeep Raichura said the 14 large pension fund managers that have formed a consortium designed to pool funds and invest in the capital-intensive projects have not dropped their plans.
However, the funds congregating around the Kenya Pension Fund Investment Consortium have no intension of committing more than five per cent of their assets to the PPP class.
Mr Raichura admitted that majority of pension schemes in Kenya are too small thus making it difficult to invest alone, which informed the decision of the 14 pension managers with an asset base of $2 billion to pool resources.