Pension industry seeks to flex its muscle in large State projects

Pension administrators have formed a consortium that will grant them a slice of capital-intensive projects with the aim of providing better returns for their members’ savings.

The formation of the consortium is one of the major steps the sector players have taken as they seek to move away from the monotonous government securities, which have been noted to be unsustainable.

Additionally, this move is expected to improve the savings culture, owing to the expected better returns, hence discouraging investment into dead assets - a term that has become synonymous with rural homes.

The consortium, which ropes in pension administrators, fund managers and stock brokers, will help pool resources for the purpose of investing in these capital-intensive projects. 

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The aim of the club is to show the government that there is enough money in the domestic market to take up large projects such as toll roads and airport upgrades.

For a long, while the pension industry has been lauded for growing its assets under management to Sh1.9 trillion as of June 2024, according to the Retirements Benefits Authority (RBA), the sector is said to be fragmented with over 1,300 schemes which makes it a challenge for them to invest in a significant project. 

However, out of these schemes, only 10 per cent have assets significant enough to invest in government infrastructure projects. 

The Pack Hunters Club, described as an innovative consortium, then brings together the Association of Pension Trustees and Administrators of Kenya (Aptak), the Fund Managers Association (FMA) and the Kenya Association of Stockbrokers and Investment Banks (Kasib). 

“This innovative consortium brings together key players in Kenya’s financial sector, including Aptak, the FMA, the Kasib, and custodians to pool resources and focus on large-scale infrastructure projects that are vital to Kenya’s economic growth,” said a statement signed by Old Mutual Asset Management managing director Anthony Mwithiga, Kasib chief executive Kasib Willie Njoroge and CPF Group executive advisor Geoffrey Odundo. 

Odundo is the lead advisor of the consortium.

The statement noted that in the face of ever-growing infrastructure needs, The Pack Hunters Club aims to tackle projects that are too substantial for any single investor but can be successfully undertaken through strategic collaboration by Kenyan institutions and for Kenya. 

“This initiative seeks to address Kenya’s critical infrastructure gaps by collectively investing in high-impact, long-term ventures that will benefit both the economy and the people of Kenya,” it adds. 

The consortium will focus on key infrastructure projects, including major toll roads, airport upgrades, and the Nairobi-Mombasa expressway, among others.

These projects will be structured under the public-private partnership (PPP) model, or any other appropriate financing structures ensuring that the interests of both the Kenyan people and the investors are balanced.

By pooling resources and expertise, the consortium seeks to attract both local and international investors, ensuring that the capital needed to fund these massive projects is readily available. 

“The investment structure is designed to offer a competitive rate of return, making it an attractive opportunity for investors while contributing to the development of vital infrastructure that will drive the country’s growth in order for Kenya to remain competitive economically,” the statement says. 

Speaking on behalf of Aptak, the association’s president Hosea Kili said the formation of club marks a significant milestone for the industry. 

“By creating a platform that encourages foreign investment, we are ensuring that these projects not only meet the immediate needs of the country but also deliver long-term value for all stakeholders involved, and especially the Kenya citizens,” he said. 

During a recent forum where CPF unveiled its umbrella pension fund called Taifa Pension Fund, Jubilee Holdings Group chief executive Julius Kipngetich emphasised the need to have a consolidated front in the pension sector. 

He said the practice of investing members’ savings in government securities is not sustainable. 

“We have to rethink where are we putting our money. We need to sit together as a pension industry, probably to seek an alternative investment. We can’t be throwing money in government securities,” he said. 

“As the Cabinet Secretary is thinking on how to shrink government (spending) so that interest rate come down, we also need to think of alternative investment.”

Kipngetich noted that while at the institutional level money is directed into government securities, at an individual level many Kenyans are spending their savings on investments that have no returns. 

He listed expensive graduation parties, weddings, funerals and rural homes for town-dwelling folks as some of them. 

“We need a complete change in culture in where we spend our savings,” he said. 

National Treasury and Economic Planning Cabinet Secretary John Mbadi, who was present at the launch of the club, said there is need to reform the capital markets in order to make it easy for resource pooling and investments.

He said pooling of resources for the purpose of investment will not only provide better returns for members but also reduce management fees and administrative costs due to economies of scale. 

“Very soon it will be difficult to buy government paper. Right now we are borrowing about Sh413 billion from the domestic market and at very high interest rates,” said the CS.

“You must start thinking of other areas of partnerships with the government.”

The CS said privately initiated proposals (PiP) are not limited to Indian or Chinese businesses.

“We are not saying it must be done by Adani. Who said PiP must come from outsiders?” Mbadi posed. 

Insurance companies hold a significant amount of Kenyans’ savings. According to the Association of Kenya Insurers, as of June 2024, guaranteed funds managed by life insurance companies were Sh404.6 billion, making up 22.29 per cent of the total Sh1.9 trillion in pension assets under management.

Notably, 677 of the 1,036 registered schemes have invested in guaranteed funds.

Data from the Insurance Regulatory Authority (IRA) shows that deposit administration is the biggest contributor to the life insurance business, accounting for 36 per cent of the total written premium. 

The total life fund for deposit administration, personal pension and annuity business totalled Sh481.03 billion, according to the IRA 2023 annual audited statistics.

Data from the RBA shows that by June 2024, about Sh1.01 trillion was invested in government securities. 

“More than half (51.12 per cent) of the scheme assets under management were invested in government securities followed by 20.45 per cent investment in guaranteed funds,” reads the RBA industry report.