Pension firms urged to invest in infrastructure projects to boost revenues

Pension firms in the country have been urged to take advantage of President Uhuru Kenyatta’s Big Four agenda by setting up consortiums and investing in infrastructure for optimal returns.

Andrew Slater, the Managing Director, RisCura, says that the ultimate consideration of investment in infrastructure – transportation, communication, sewage, water and electric systems – stems from recognition that the available listed assets do not give a fair representation of the GDP of a country.

“There are benefits of introducing infrastructure as an asset class for pension schemes to invest in. The key aspect into which this can be accessed is pension funds working in consortium as they explore alternative investments such as infrastructure,” said Mr Slater during The Actuarial Society of Kenya’s industry talk, dubbed ‘The Role of Infrastructure in a Pension Portfolio’, that took place at Liberty House

Infrastructure, though a new asset class, provides some very attractive qualities for pension funds. It provides fixed income investment with longer maturity and is available in listed markets. Projects related to infrastructure improvements may be funded publicly, privately or through public-private partnerships.

“Infrastructure systems tend to be high-cost investments and are vital to a country’s economic development and prosperity,” he added.

Pension schemes in Kenya have generally invested in a conservative manner with government debt and listed equity forming the majority of portfolio allocation, perhaps diversified with direct property for the larger schemes.

The fixed income available is overwhelmingly government (or other public entity) debt rather than corporate debt.  And stock markets show significant overweight relative to GDP to certain sectors, most notably financial.

These investments exhibit significant concentration and do not use the full range of asset classes, both mainstream and alternative, where allowed by the regulator.  Additionally, pension schemes in the country have had to (and most likely will continue to have to) grapple with high inflation.  Another form of inflation that pension schemes will need to tackle is rising life expectancy.