What you need to know:
- In its heydays, Amana Capital was running pooled funds for over Sh1.2 billion.
- The fund now holds only Sh135.3 million having shrunk from those glorious days.
In primary school, a CRE examination would pose a moral conundrum and provide multiple answers about what you will do if you came across a Sh100 note lying on the ground. Back then, it was a tidy sum of money that could buy one several goodies and the temptation to leave it there was almost impossible to surmount.
In reality, answers are not so straight forward as Amana Capital learned losing more than Sh1 billion over the last few years for being honest about money pumped in collapsed Nakumatt.
In its heydays, Amana Capital was running pooled funds for over Sh1.2 billion split across investment vehicles and sunk in fixed deposits, equities, government paper, other pooled funds and over Sh300 million in a toxic commercial paper.
By the end of June 2019, the company had invested Sh394.4 in ‘unlisted securities’ according to Capital Market Authority fillings. “It was a small investment compared to the total fund about 10 percent but sometimes in 2016/17 Nakumatt stopped paying interest on the papers because of their cash flow problems,” Reginald Kadzutu, acting chief executive-Amana Capital said last week.
The investment was being rolled over until the retailer went under, and has continued to reflect in the fund manager’s books upto the first quarter of 2020 at Sh375 million.
But with 10 percent of the fund yielding no returns, Amana capital returns started taking a beating losing its competitive edge against its peers.
“Kenyans being Kenyans, they will move their money if your yield starts dropping. People started withdrawing funds and taking to other players who were promising returns of up to 18 percent,” he said.
The fund whittled the portion invested in Nakumatt and started growing even bigger with returns climbing down even faster.
Freeze investor cash
They made a fatal decision to freeze investor cash in Amana Shilling Fund, which was carrying the Nakumatt portfolio and called an extraordinary general meeting to lay bare their problems.
But this is not a CRE exam, honesty in a market only worked against the company, investor’s started taking out money from its other funds that were not frozen.
“I think between December 2018 and February 2019 we lost over Sh400 million. Unfortunately the story was only Amana Capital that invested in Nakumatt. Ours was small, only Sh300 million out of firms that cumulatively lost over Sh4 billion in Nakumatt commercial papers,” Mr Kadzutu said.
Industry players say Nakumatt papers were fraudulent and blame the company, which marketed the investments to them for failing to conduct due diligence.
Some have even speculated the firm that marketed the paper withdrew their own investments from Nakumatt before the retailer went under, a matter which is being investigated. The firm said they took themselves to the regulator and promised investor that they will use legal means to try and get back the investments.
CMA issued a 28-day freeze on Nairobi-based fund manager to enable the firm to boost its liquidity.
In a statement, the authority says the move, which is in line with its investor protection mandate, will give the firm time to realise strategies to improve its liquidity position to meet redemptions.
The fund later allowed investors to access part of their fund after the freeze.
The company also decided to convert lost investments into ownership so that customers would reclaim their lost cash as shareholders when it grows back.
But that did not stop Amana from crumbling further especially after remaining investors discovered that money invested in fixed deposit at Jamii Bora was also at the risk of disappearing as the small lender struggled with liquidity issues.
They were only saved after Cooperative bought Jamii Bora at Sh1 billion lower than the valuations of Sh1.4 billion that had been anticipated when the bank had attempted to sell to CBA in January 2019.
“We had told them some of the fixed deposits were in Jamii Bora, which was also illiquid, it was only after Cooperative Bank bought it that it started paying and we told them if they wanted to withdraw they could and if they wanted to continue staying they also could," Mr Kadzutu said.
In the first quarter of 2020, Amana had Sh189 million in fixed deposits, which dropped to Sh13 million in the second quarter Sh8 million in the third and zero by quarter four of 2020.
But the new leadership is still confident they have seen the worst and can turn things around, it has an entire new workforce and is shifting into a digital first fund to use minimal costs to drive growth.
The fund now holds only Sh135.3 million having shrunk from the heydays when it held over Sh1.2 billion.
Mr Kadzutu said they have also become more risk averse and are not putting any money in a corporate bond until they can be assured by the regulator they will not lose it.
“We are not touching any corporate bond until there is regulations that protect investors. Currently when you want to invest you only see their financial statements which as we learned were not reliable,” he said.
He said once companies issue commercial papers they need to provide more disclosures to the regulator even if they are not listed since they have taken public money through fund managers.
The regulator should also be able to review their corporate governance to give the market confidence that money is not lost the way fund managers lost in Athi River Mining, Real People and Nakumatt commercial papers.
What the regulator has done is to push for more transparency from fund managers running pooled funds.
CMA ordered money market funds to disclose in detail where they have invested clients’ cash as well as the terms of those deals following revelations of investment gambles that have lost investors billions of shillings.
CMA chief executive Wycliffe Shamiah said the regulator plans to audit the committees that make investment decisions after they realised some of the funds were being controlled by lone rangers.
“We have issued circulars clarifying when they do their quarterly fillings to disclose which investments in classes, for example you do not just make a return saying; Cash, Sh1 billion, we want you to be very specific, what is in deposits, what is in cash. As we review we also ask you to explain more on the terms of those assets as you disclose them,” he said.
“We will go into the investment committees sitting in the fund managers that make those decisions because we can see there are specific decisions left to one individual as opposed to a committee which can have better ideas,” Mr Shamiah said.