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Unlocking Pension Funds’​ Investments

George Mbithi - August 17, 2021 - 0 comments

USAID’s Kenya Investment Mechanism is partnering with the Kenya Pension Funds Investment Consortium (KEPFIC) to unlock investments into the energy and infrastructure sectors.

In 2018, a group of local Kenyan pension schemes recognized they faced a common challenge. The performance of their investments in the stock market continued a worrying trend of decline. They had lost money in several high-profile corporate bond failures. The schemes risked being unable to pay out member dues upon retirement. They were increasing their investments in government bonds. These, while safe, did not provide the required diversified and well-balanced portfolios. At the same time, the government was facing its own challenge of limited funding for required infrastructure. This resulted from competing priorities like healthcare, food security, funding to county governments, among others. It was clear that the pension fund community badly needed alternative investments. And, the government needed to spur more private sector participation in infrastructure development and investment.

Pension Funds The Solution

While infrastructure as an asset class was not an entirely new concept, local pension funds had rarely participated in the same. Why? There was limited awareness of investable opportunities. They also had limited investment expertise, and they shied away from the typically large infrastructure ticket sizes. These hurdles led to the birth of KEPFIC, a consortium of Kenyan pension funds that are making long-term infrastructure and alternative asset investments in the region. KEPFIC was created to build up the infrastructure investment expertise and pool investment funds from pension funds into bankable infrastructure opportunities. This will provide competitive returns and diversification opportunities to member funds.

Kenya’s annual infrastructure funding gap currently stands at more than KES 200 billion. This presents private investors with numerous opportunities in sectors like power, transportation, and urban development.

Pension funds are the ideal funding partners for infrastructure projects due to their longer return on investment horizons. Additionally, they play a significant role in financing infrastructure projects in many countries, including the United States. However, individual pension funds in Kenya frequently lack the capacity to venture into big-ticket infrastructure projects alone. KEPFIC offers a solution to this challenge, by pooling together resources from individual funds, and intends to mobilize over $250 million over the next 5 years for infrastructure investment.

MiDA Advisors (under USAID Invest) and the World Bank also support the consortium.

Early Results

Since its launch in October 2020 KEPFIC has leveraged its extensive network and engaged project sponsors, commercial banks, investment advisors and the Public Private Partnership Unit at the National Treasury to build a strong pipeline of bankable opportunities. They have generated a pipeline of over 20 transactions across energy, road, student housing and water sectors. KEPFI has shortlisted 5 projects valued at over $150 million. These projects are at advanced stages of assessment. One project, a Lot 3 Project Bond, is expected to close before in the last quarter of 2021.

Additionally, KEPFIC and USAID’s Kenya Investment Mechanism are working closely with the Capital Markets Authority and Nairobi Securities Exchange to use capital market instruments like bonds for its investments for added liquidity.

Watch this video to learn more about KEPFIC!