Kenya’s pension funds: H1 2024 performance & investment strategies

Kenya's pension funds have showcased robust performance in the first half of 2024, according to the Zamara Consulting Actuaries' 74th Investment Performance Survey. With a total asset value of Ksh1.146 trillion spread across 398 schemes, the sector has demonstrated resilience and growth. Neha Datta, the Head of Asset Consulting at Zamara Kenya, discussed the key drivers behind this success and the future outlook for pension investments. The survey revealed that the average pension scheme in Kenya achieved a remarkable return of 13.9 percent over 12 months, surpassing the inflation rate for the same period. This performance has been attributed to the impressive results seen in the three primary asset classes that pension funds typically invest in within the Kenyan market. Fixed-income investments, dominated by government bonds, delivered a significant return of nearly 14 percent. The government's issuance of bonds at higher interest rates has contributed to these returns, with coupon rates ranging from 15 to 18 percent. Local equities also saw a resurgence with returns of around 11 percent, driven by growing confidence in the economy following successful international bond repayments. Offshore investments have also performed exceptionally well, benefiting from rallies in offshore equities and the strengthening of the US dollar. Datta highlighted the continued strength of fixed-income investments, particularly in government bonds, as a key factor in outperforming other asset classes. With approximately 80 percent of pension fund assets allocated to fixed income, the sector has consistently yielded returns exceeding 10 percent over the years. The anticipation of sustained domestic borrowing by the government indicates a positive outlook for the performance of this asset class in the medium term. In response to market volatility, conservative pension schemes have adopted strategies focused on reducing exposure to higher risk assets like quoted equities and increasing investments in government bonds. The report showed a significant shift towards conservative schemes, with 75 percent of surveyed pension funds favoring safer securities like government bonds over the past five years. This trend towards safety has limited portfolio diversification but has been supported by the attractive returns offered by government securities. Offshore investments have played a crucial role in enhancing the overall performance of pension schemes, delivering an average return of 16.9 percent over a five-year period. However, the impact of offshore investments remains limited due to the modest exposure of Kenyan pension funds, which typically allocate only four to five percent of their assets offshore. Factors such as global inflation, US federal rates, currency fluctuations, and geopolitical dynamics can influence the performance of offshore investments. Looking ahead, pension schemes are positioning themselves to continue outpacing inflation by exploring opportunities for diversification. While government bonds currently provide a reliable hedge against inflation, there is growing interest in alternative assets such as private equity and debt. Datta emphasized the importance of diversification in achieving long-term growth and stability in pension investments.