The National Social Security Fund (NSSF) is considering diversifying its investment in government securities to include dollar-denominated assets as it looks to cushion its portfolio from deeper erosion due to the depreciating shilling.
The Sh303 billion pension fund has presently invested 56 per cent of its assets in State securities and says that investment in sovereign issuances such as Kenya’s Eurobonds would help in propping the return generated for pensioners.
Kenya has six Eurobond issuances currently in the market with maturities across 2024, 2027, 2028, 2032, 2034, and 2048.
According to official data the Kenya shilling is currently exchanging to the greenback at 126.6 units having depreciated by 2.6 per cent since the start of 2023. Data from banks, however, points to a parallel system where the local unit is exchanged at rates between 132 and 134 units to the greenback.
“It’s very important to note that the Kenya shilling has taken a beating against the US dollar and some of these bonds we are holding are shilling-denominated. I am encouraging management to speak to the fund managers and see whether we can increase our threshold of dollar-denominated bonds like Eurobonds for example. That way we hedge against the shilling and its devaluation,” said NSSF chairman Anthony Munyir.
The Retirement Benefits Authority Investment Guidelines prescribe a ceiling of 90 per cent of a fund’s assets under management for investment in East African Community government securities and infrastructure bonds. Currently, government securities account for the lion’s share of NSSF’s assets under management at 56 per cent followed by listed stocks and immovable property at 24 per cent and 16 per cent, respectively.
NSSF is eyeing dollar-denominated bond holdings in a move it says will help the fund generate stable returns for investors. In the year ended June 30, 2021, NSSF’s board of trustees approved 10 per cent in interest on investors’ funds.
“The board doesn’t give investment direction to fund managers but it is a suggestion that I have been talking to management to convey to the investment managers since it is important to hedge with dollar-denominated bonds because that way you can realise a stable return unlike taking a hit on the continuous revaluation of the shilling,” says Munyiri.
NSSF is set to receive enhanced contributions from employers following a February 3, 2022 Court of Appeal ruling, which reinstated the NSSF Act 2013, ending a seven-year impasse.
The NSSF Act, of 2013 raised salaried staff monthly deductions from Sh200 to Sh600 for the lowest earner and from Sh320 to Sh1,080 for top earners under a graduated scale. Upper limits are to rise every year.