Pension Funds Reduce Offshore Investments In Kenya

Uncertainty over the US Federal Reserve’s rate hike decision caused lower returns for offshore investments by local pension schemes during the third quarter of the year, new data show.
The Alexander Forbes Consulting Actuaries Schemes Survey for the period ending September 2015 covering 380 schemes indicates earnings by pension schemes for assets held outside Kenya dropped to a rate of 9.7 per cent compared to an interest of 13.8 per cent in the second quarter (April-June).

The Afcass survey further indicates there was limited exposure by pension funds to offshore assets, triggered by the uncertainty, as the average investment on these assets grew modestly to 2.2 per cent from 2.1 per cent as at end June. The 380 schemes’ total assets were valued at Sh510.3 billion.

Investors globally were wary of possible volatility in the global equity and credit market due to a rate hike by the US Fed during the third quarter hence the low investor confidence witnessed. The US Fed left interest rates unchanged at a meeting on September 17.

According to fund managers Cytonn Investments, a rate hike could be in the offing in December due to a strong gross domestic product growth in‎ the US of 3.7 per cent during the second quarter and fall in unemployment rate to a five-year low of 5.4 per cent compared to Eurozone’s 11 per cent.
A similar survey on pension schemes by Actuarial Services East Africa covering 76 schemes showed fixed income assets were the most preferred investment option with 65.8 per cent allocation of funds compared to a paltry 3.09 per cent of the total fund value of Sh93 billion spent on offshore assets.

Returns on offshore investments, according to the Actserv survey, fell to three per cent rate from 7.26 per cent in quarter two.

“This was attributed to China devaluing the Yuan against the US dollar and the uncertainty of the Federal Reserve raising interest rates in USA which lead to low investor confidence,” said Actserv.

The US central bank has kept interest rates low since December 2008, targeting to boost the US economy during the recession. In July, however, Federal Reserve Chair Janet Yellen said the Fed would raise rates this year if economic conditions improve as expected.