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Stanbic investor-conference-2007
1. THE KENYAN PENSION FUND
MARKET
Presentation by: Nzomo Mutuku
Manager, Research & Development
Retirement Benefits Authority
Stanbic Bank, International Investors Seminar,
Nairobi January 29, 2007
2. OUTLINE
This presentation will cover:
! Retirement benefits scheme regulations;
! Retirement benefits scheme investments;
! Future opportunities; and,
! A Question and Answer session
3. 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.
4. 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.
5. 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 scheme’s investment objectives for the relevant
period;
! Consider the scheme’s age profile;
! Specify the fund manager’s discretionary limits; and,
! Be revised every 3 years.
6. INVESTMENTS GUIDELINES
INVESTMENT CLASS MAXIMUM (%)
Cash 5
Fixed deposits 30
Fixed income (private) 30
Government securities 70
Quoted equity 70
Unquoted equity 5
Offshore investments 15
Immovable property 30
Guaranteed funds 100
Other investments 5
7. 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.
8. GROWTH IN ASSETS UNDER MANAGEMENT
250,000 Q42001
Pension Assets Under Management
-
50,000
100,000
150,000
200,000
Q12002
Q22002
Q32002
Q42002
Q12003
Q22003
Q32003
Q42003
Q12004
Q22004
Q32004
Q42004
Q12005
Q22005
Q32005
Q42005
Q12006
Q22006
Period
Value of Assets (KShs Million)
0
200
400
600
800
1000
1200
Schemes Under Management
Total
Schemes
9. 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;
12. COMPARISON OF ASSET ALLOCATIONS
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
UK KENYA
Other Investments
Guaranteed Funds
Immovable Property
Offshore Investments
Unquoted Equity
Quoted Equity
Government Securities
Fixed Income
Fixed Deposits
Cash
13. 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
14. AREAS OF OFFSHORE INVESTMENTS
- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Shillings, Billion
As at December 2005
Corporate Bonds
Government Bonds
Bank Deposits
Quoted Equities
Collective Investment Schemes
15. AVERAGE SCHEME PERFORMANCE
Annual Return to September 2006
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
AFCASS M in AFCASS M ax AFCASS Average Inflation 1-year Tbond Rate
Source: Alexander Forbes Financial Services Scheme Survey
16. ASSET CLASS PERFORMANCE - EQUITY
! Increasing holdings due to the market’s 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
17. 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
19. 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
20. 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
21. 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
22. 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
23. 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.