Pension funds increased their holdings of government papers by 274 billion shillings during the Covid-19 period.
This scenario portends a nervous market that has been made worse by the impending general election.
As of July 9, pension funds held 1.14 trillion shillings of government securities – treasury bills and treasury bills, an increase of 31.8% from 862.2 billion shillings in March 2020 when the country recorded its first case of Covid-19, according to data from the Central Bank of Kenya (CBK) Spectacles.
Pensions Liaison Officer Michael Mitau noted that it’s not too strange when the country heads for elections with fund managers keen to put retirees’ money in safe assets.
Government securities are considered the safest asset with the assurance that the government will always pay its debts as long as there are taxes.
“There is a bit of apprehension about other competing aspects of real estate and stocks,” Mitau said.
He noted that for most programs, in order to play it safe, fund managers take a conservative approach to protecting capital.
“And it’s usually not too strange when you start to get closer to the electoral cycle for most investment managers and trustees to feel it’s time to hold on to safer assets to lock in some gains,” a- he added.
Pension funds will also examine the comparative returns offered by government securities relative to stocks and other asset classes.
But it was the government’s appetite for borrowing that attracted pension funds, which are required to place much of their funds in cash and cash equivalents, including treasury bills, a paper long-term state that can easily be traded in the secondary market.
In the next fiscal year ending in June of next year, the government aims to borrow nearly half a trillion from the public.
And the government, Mutai said, offered the bonds at a competitive rate compared to other assets.
This, said Ken Gichiga, an economist, has resulted in another form of foreclosure where investors, rather than investing in the economy like real estate, are forced to put money in government papers.
The growth in the holdings of government securities by pension funds has been faster than that of banks, which increased their holdings by 14 percent to 227.5 billion shillings.
In the end, the share of banks held in government securities fell from 54.3 percent to 50.7 percent while that of pension funds increased from 29 percent to 31.11 percent.
Normally, pension funds are required to hold a large portion of their assets in cash and cash equivalents, and since all assets have been volatile, most of them have preferred to place their investments in government securities.
In December last year, the National Treasury said it was expected to save nearly 73 billion shillings by requesting the deferral of interest payments on government securities held by pension funds and pension companies. ‘assurance.
This, the Exchequer said, was part of the National Treasury’s debt restructuring plan to consolidate more funds to be spent on the economy at a time of dwindling tax revenues.
“Deferred interest will be amortized and paid with interest due in subsequent years until the security matures,” the National Treasury said in a report.