In a recent survey conducted by South Africa-based investment firm RisCura, Kenyan pension schemes have experienced negative returns in the quarter ending September. The Performance Investment Management Survey reveals that the weighted average return of the surveyed schemes plummeted to negative 3.06 percent, a significant decline from the 0.18 percent return reported in the previous quarter.

The downturn was particularly evident in equities, with the weighted average return from this asset class deteriorating to a loss of 10.95 percent. This marked a substantial drop from the 4.27 percent losses reported in the quarter ending June, contributing to the overall drag on the scheme’s total performance.

Fixed income portfolios also faced challenges, recording a weighted average loss of 1.62 percent in the quarter, compared to gains of 0.8 percent in the preceding quarter. The survey notes that the decrease in returns was observed in fixed income and offshore portfolios, which decreased by approximately 1.78 and 1.52 percent, respectively, from the last quarter.

Despite the overall decline, returns from offshore investments remained relatively resilient at a weighted average return of 1.79 percent in the third quarter, down from 14.9 percent in the second quarter.

The survey covered 397 schemes, revealing that the fund value of the schemes amounted to Sh944 billion, reflecting a 3.9 percent decrease compared to Sh982 billion in the second quarter. The assets under management, excluding property, also decreased from Sh882 billion in Q2 2023 to Sh850 billion in Q3 2023.

The decline in returns from equities is largely attributed to falling stock prices at the Nairobi Securities Exchange, where the NSE all-share index declined by 11.01 percent in the third quarter to 95.22 points. Concurrently, market capitalization fell to Sh1.4 trillion from Sh1.6 trillion in June. Pension schemes, particularly those investing in bonds, have been exposed to paper losses as bond prices decrease amid rising interest rates on government securities in both primary and secondary markets.

In response to market turmoil, pension schemes have shifted to conservative investment strategies. The survey reveals that the number of schemes deploying a conservative investment approach, defined as those with more than 65 percent of assets in fixed income, increased by 1 to 345 in the quarter. These conservative schemes managed Sh714 billion in assets under management during the quarter.

Twenty-seven schemes adopted a moderate investment strategy, investing between 45 and 65 percent of assets in fixed income, with Sh82 billion in assets under management. Additionally, 25 schemes pursued an aggressive investment strategy, deploying less than 45 percent of assets in fixed income, and had a combined Sh53 billion in assets under management.

The reduced returns by pension schemes imply that retirees in these schemes would earn less if the entities were to make a distribution in the period.

Photo (byWandiri Gitogo)

By: Delino Gayweh
Serrai Financial Analyst
19th November, 2023