THE KENYAN PENSION FUND

MARKET
Presentation by: Nzomo Mutuku
Manager, Research & Development
Retirement Benefits Authority
StanbicBank, International Investors Seminar,
Nairobi January 29, 2007
OUTLINE
This presentation will cover:
! Retirement benefits scheme regulations;
! Retirement benefits scheme investments;
! Future opportunities; and,
! A Question and Answer session
RETIREMENT BENEFITS SCHEME REGULATIONS
All retirement benefits schemes in Kenya must:
! Be registered with RBA;
! Appoint a fund manager;
! Appoint a custodian (segregated funds); and,
! Appoint a Board of Trustees to manage scheme affairs.
In order to eliminate conflict of interest, these institutions
must be independent companies.
RETIREMENT BENEFITS SCHEME REGULATIONS - II
To ensure transparency in scheme management,
schemes are required to:
! Keep and submit annual accounts to RBA;
! Submit an investment policy at least once in every 3
years;
! Submit contribution returns within 10 days of the
end of each quarter; and,
! Submit investment returns after every quarter.
INVESTMENTS
Each scheme should submit an investment policy that has
been prepared by Trustees with assistance of an investment
advisor. The policy should:
! Adhere to RBA investment guidelines;
! Give the schemes investment objectives for the relevant
period;
! Consider the schemes age profile;
! Specify the fund managers discretionary limits; and,
! Be revised every 3 years.
INVESTMENTS GUIDELINES
100 Guaranteed funds
5 Other investments
30 Immovable property
15 Offshore investments
5 Unquoted equity
70 Quoted equity
70 Government securities
30 Fixed income (private)
30 Fixed deposits
5 Cash
MAXIMUM (%) MAXIMUM (%) INVESTMENT CLASS INVESTMENT CLASS
OTHER INVESTMENT GUIDELINES
" Allowance for temporary violations of the maximum
" Max of 30 percent of fund in a particular equity
" Limit of 3% investment in the sponsor (10% for quoted equity of
sponsor)
" Investment in any other asset requires prior approval of the Authority
following application by the scheme.
" Offshore investments limited to bank deposits, government securities,
quoted equities, rated corporate bonds and offshore collective
investment schemes reflecting these assets.
GROWTH IN ASSETS UNDER MANAGEMENT
Pension Assets Under Management
-
50,000
100,000
150,000
200,000
250,000
Q
4
2
0
0
1
Q
1
2
0
0
2
Q
2
2
0
0
2
Q
3
2
0
0
2
Q
4
2
0
0
2
Q
1
2
0
0
3
Q
2
2
0
0
3
Q
3
2
0
0
3
Q
4
2
0
0
3
Q
1
2
0
0
4
Q
2
2
0
0
4
Q
3
2
0
0
4
Q
4
2
0
0
4
Q
1
2
0
0
5
Q
2
2
0
0
5
Q
3
2
0
0
5
Q
4
2
0
0
5
Q
1
2
0
0
6
Q
2
2
0
0
6
Period
V
a
l
u
e

o
f

A
s
s
e
t
s

(
K
S
h
s

M
i
l
l
i
o
n
)
0
200
400
600
800
1000
1200
S
c
h
e
m
e
s

U
n
d
e
r

M
a
n
a
g
e
m
e
n
t
Total
Schemes
REASONS FOR GROWTH
Growth of the industry has been influenced by:
! Increasing awareness of the need to save for retirement and
of rights of scheme members;
! Trustees awareness of their roles and responsibilities;
! Research and best international practice based pension
reforms geared at development of the industry;
! Professional management of assets;
! Independence of service providers, which increases
accountability;
KENYAS PENSION FUND ASSET ALLOCATIONS
0%
20%
40%
60%
80%
100%
Q
2
2
0
0
2
Q
3
2
0
0
2
Q
4
2
0
0
2
Q
1
2
0
0
3
Q
2
2
0
0
3
Q
3
2
0
0
3
Q
4
2
0
0
3
Q
1
2
0
0
4
Q
2
2
0
0
4
Q
3
2
0
0
4
Q
4
2
0
0
4
Q
1
2
0
0
5
Q
2
2
0
0
5
Q
3
2
0
0
5
Q
4
2
0
0
5
Q
1
2
0
0
6
Q
2
2
0
0
6
Period
A
s
s
e
t

A
l
l
o
c
a
t
i
o
n
s
Cash Fixed Deposits Fixed Income Government Securities
Quoted Equity Unquoted Equity Offshore Investments Immovable Property
Guaranteed Funds Other Investments
UK PENSION FUND ASSET ALLOCATIONS
COMPARISON OF ASSET ALLOCATIONS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UK KENYA
Other Investments
Guaranteed Funds
Immovable Property
Offshore Investments
Unquoted Equity
Quoted Equity
Government Securities
Fixed Income
Fixed Deposits
Cash
COMPARISON UK AND KENYA
! UK increase in property and offshore decrease in UK fixed
income
! Kenya Increase in equity, decrease in property and
deposits.
! Maximum recommended property investment curtailed by:
# Incongruent property pricing market in Kenya
# Relatively dormant property market
! Kenyan-based investment strategies for the majority of
Trustees
AREAS OF OFFSHORE INVESTMENTS
- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Shillings, Billion
Collective Investment Schemes
Quoted Equities
Bank Deposits
Government Bonds
Corporate Bonds
As at December 2005
AVERAGE SCHEME PERFORMANCE
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
AFCASS Min AFCASS Max AFCASS Average Inf lat ion 1-year Tbond Rat e
Source: Alexander Forbes Financial Services Scheme Survey
Annual Return to September 2006
ASSET CLASS PERFORMANCE - EQUITY
! Increasing holdings due to the markets current bullish
run
! Increased confidence in the market
! Response to the vibrancy of the market through
numerous IPOs, splits and rights issues over the past
1.5 years Kengen, E. A. Cables, Diamond Trust etc
ASSET CLASS PERFORMANCE GS & FI
! Increasing investment in Government Securities with
the introduction of longer-term bonds
! Declining treasury bill rates due to increasing liquidity
SECURITIES YIELD CURVE
Source: Central Bank of Kenya
EXPECTED OPPORTUNITIES - EQUITY
Increasing investment in this asset class as:
! Investors confidence continues to grow;
! Pension assets continue to multiply;
! New schemes are registered; and,
! New stocks are introduced into the Kenyan, Ugandan
and Tanzanian stock markets
EXPECTED OPPORTUNITIES GS & FI
! Increased investment as more and longer-term
government bonds are introduced;
! New investment opportunities in government securities
such as infrastructure bonds
! Introduction of new corporate debt instruments on the
public market
EXPECTED OPPORTUNITIES - PROPERTY
Increased activity in the property market with:
! Introduction of the greatly anticipated asset backed
securities and property unit trusts;
! Development of the Kenya Real Estate Index (KREX),
which is expected to lead to more congruent pricing of
property
EXPECTED OPPORTUNITIES OTHER INVESTMENTS
! Greater investment in this category as more companies
issue private debt instruments; and,
! New products are introduced due to the increasing
need for investment opportunities for institutions
CONCLUSION
A promising future for the Kenyan Retirement Benefits
Sector due to:
! Increasing awareness of the need to save for retirement;
! Focused supervision ad regulation of the sector; and,
! Continued reform aimed at developing the sector.
THANK YOU
THANK YOU
www.rba.go.ke
www.rba.go.ke