Investment of Retirement Benefit Scheme Assets

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Investment of Retirement Benefit Scheme
Assets Presentation by Paul Mwai Old Mutual Asset
Managers
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TRUSTEES
RBA
FUND MANAGER
THE MEMBERS
CUSTODIAN
ADMINISTRATOR
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The Role of the Fund Manager

• Advise the Trustees on investments
• Set investment policy in consultation with
  Trustees Actuary.
• Identify Analyse securities
• Construct portfolio.
• Constantly review portfolio.
• Evaluate Report Performance.

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Trustees Responsibilities

• -     Appoint, appraise and as required remove,
  Fund Managers (whether internal or external).
• -  Appoint, appraise and as required remove,
  other service providers such as asset consultants
  and custodians
• -   Monitor and review all investment
  arrangements
• -   Regularly review and revise this Statement of
  Investment Principles (3 years)

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Trustees Responsibilities

• -         Specify the risk tolerance, investment
  policy, objectives and principles of the Fund.
•  Develop and implement an appropriate investment
  strategy to meet the objectives.
•  Determine the permissible assets to be invested
  in (subject to any statutory limitation).
•   Determine the Strategic asset allocation
  strategy
•   Ensure compliance with all relevant legislation
  and regulations, and to act in accordance with
  the Trust Deed

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The Investment Objective

• To preserve and enhance the purchasing power of
  members savings.
• Long term return above the rate of Inflation.
• Long term return in excess of actuarial
  assumption.
• To achieve a return that is above benchmark.
• Maximum long term return within acceptable risk
  parameters.
• Manage volatility particularly as retirement
  approaches
• Comprehensive risk management
• Performance must always be measured against the
  long term objectives of the fund and appropriate
  levels of risk

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Pension Fund Cash-flows
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Asset Allocation
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Kenya Occupational Pension Funds Asset Allocation
Source Retirement Benefits Authority Kenya
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USA Pension Funds Asset Allocation
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Domestic Interest Bearing Assets

• Provides mainly income though capital gains
  (losses) will occur
• Lowest risk asset class, but
• Returns are lower on a long term basis than
  those of other asset classes to the extent that
• . Does not provide adequate protection against
  inflation
• Their combination with other assets classes
  provides stability to returns
• Long term average returns of 15 per annum.
• Standard Deviation of 9.79 (low risk)
•  

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Real interest rates .. Are you beating inflation
??
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Domestic Equities

• Returns derived from both income and capital
  gains
• Returns are better on a long term basis than
  those of interest bearing assets, but .
• Higher risk measured by volatility of returns
• Low correlation with Offshore / T-bills
• Higher long term return and correlation suggests
  a hedge against inflation
• Diversification (combination with other asset
  classes) can reduce portfolio risk and provides
  increased returns
• Long term average return of around 21 per annum
• Standard Deviation of 57 (high risk)
•  

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INVESTMENT ENVIROMENT 2003 -2006
Ken-gen Effect
Market correction/ constitution impasse
Weak economic growth political uncertainty
economic growth political uncertainty
Successful transition election new hope
investor confines
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Property

• Provides both income and capital gains
• Returns are better, on a long term basis, than
  those of interest bearing assets (though
  credible long term data is difficult to find for
  East Africa) ..
• .. But higher risk (like offshore and local
  equities) though volatility may be different to
  these other asset classes
• The combination with other assets classes again
  reduces portfolio risk, provides stability and
  enhanced returns
• Provides a better hedge against inflation than
  interest bearing assets.
• Current Rental Yield 6-14 depending on type
  Residential, Retail, or Commercial
•  

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Offshore

• Diversification if local economy not
  performing, offshore can provide stability in
  investment growth
• Access to sectors not present in the Local
  market e.g. pharmaceuticals, IT
• Reduces risk ?? global markets are more
  stable ....
• .. But need to manage dual risks of markets and
  currencies
• Hedge against a depreciation in the Local
  Currency
• Long-term average return about 20 per annum
  (including a 8 exchange gain)
• Standard Deviation of 29.27 (reflects dual
  risks)

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Return, Risk and Diversification
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Kenyan Asset Class Returns, 1979 to date
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Growing Your Pension Nest Egg
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• THANK YOU FOR YOUR TIME