Local pension schemes have squeezed higher returns from the broad rise in domestic interest rates in the 12 months to June, benefiting largely from enhanced yields on Treasury instruments.
Zamara Consulting Actuaries Schemes survey, which generated findings from its survey of 398 schemes, shows the median return by the schemes hit 13.9 percent in the period from 6.6 percent a year earlier.
The scheme’s median return beat inflation for the first time since the year to June 2021 as measures taken to combat price pressures, including the raising of the benchmark interest rate worked to lift the return on government securities while lowering consumer prices.
“The median return of the participating schemes increased to 13.9 percent in the 12-month period ended June 30, 2024, compared to 6.6 percent in the 12-month period ended June 30, 2023. This improvement was driven by positive bond and equity market performance,” the Zamara report states.
The high-interest rate environment drove average yields on 91, 182 and 364-day Treasury bills to 16.7 percent, 16.6 percent and 16 percent respectively at the end of June 2024.
Total assets managed by schemes participating in the survey rose to Sh.1.14 trillion compared to Sh1.05 trillion in June 2023 despite the number of surveyed schemes falling from 423.
The pension schemes continued to pile into government securities based on the rise in the number of entities taking up a conservative investment approach which represents more than 80 percent of assets under management invested in Treasury instruments.
Conservative schemes in the period comprised 76.4 percent of participating schemes in the survey and managed 69.2 percent of assets.
In contrast, conservative schemes comprised 66.9 percent of entities in the June 2023 survey and had 59.7 percent of assets under management.
Despite the prominence of government securities as the primary investment option, the number of aggressive schemes who invest less than 65 percent of assets in fixed income rose to 2.3 percent from 1.4 percent previously.
The assets under management of the aggressive schemes equally rose to four percent from 2.5 percent a year ago in the backdrop of improved performance from the equity income asset class.
During the period, the Nairobi All Share Index, which represents the mean change in the price of Nairobi Securities Exchange listed stocks posted gains of 18.9 percent between January and June 2024 as the stock market marked a bullish trend supported by new foreign inflows.