Positive Impact of Offshore Investments On Retirement Schemes’ Performance

by Business Watch Team

Leading financial services firm, Zamara Group has announced its Zamara Consulting Actuaries Schemes Survey (Z-CASS) report for the second quarter of 2023.

The survey, covering 423 schemes and assets under management totaling KShs 1.059 trillion, provides valuable insights into the performance of retirement schemes in Kenya’s financial landscape.

During the quarter, Retirement Schemes’ median return was 0.2% down from 0.9% in March 2023. The second quarter’s performance was affected by lower fixed-income performance due to rising interest rates, which hurt bond valuations. Fixed Income performance during the quarter was 0.8% down from 2.6% in March 2023. The average allocation for Fixed Income was 78%, showing a slight increase from 76% in the previous quarter.

The survey profiles schemes into categories based on their asset allocation. Aggressive schemes (schemes with a higher proportion of assets invested in Equity and Offshore asset classes) had a median return of 1.6% compared to a 0.2% return for schemes with a lower allocation (schemes with a conservative risk profile). We have noted a steady reduction in the number of aggressive Schemes over the past few years because of a preference for Fixed Income allocation among the participating Schemes.

The Offshore performance was 16.0%, 41.9%, 13.2%, and 14.2% for the quarter, 1 year, 3 years, and 5 years respectively. This year there has been a positive performance in the Offshore asset class on account of the strengthening of the dollar against the shilling. When investors invest outside their domestic market, they encounter dual avenues of potential gain: the increase in value of foreign currencies and the performance of the particular investment they have engaged in. In the context of Kenyan retirement schemes, their Offshore investments have predominantly comprised equities within advanced global markets.

Participating Retirement Schemes recorded strong performance with a median return of 6.6% over the one year ending 30 June 2023 compared to 0.8% in June 2022. Performance in 2023 was driven by the improved performance across all asset classes, although the Equities still showed negative performance.

Participating Retirement Schemes recorded an annualized median return of 7.6% over the three years and 7.5% over the five years. In contrast to a similar period, this average has exhibited a downward trend due to the continuous negative equities performance and high-interest rates, which has resulted in negative Fixed Income returns. Schemes were able to comfortably beat inflation over these periods, with inflation at 6.8% over the three years and 6.2% over the five years.

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