The National Social Security Fund (NSSF) diversified its asset portfolio in the year to June 2024 with new investments in Eurobonds and private equity, as it cut its exposure to short-term government securities and bank deposits.
The State-controlled fund’s latest financial statement shows that it invested Sh7.17 billion in Eurobonds in the review period, marking its first uptake of the dollar-denominated securities, which will also serve as a cushion for its portfolio valuation in case of the shilling depreciating against the greenback.
The NSSF had indicated in 2023 that it was mulling an investment in Eurobonds, with an eye on propping up returns for savers.
If the NSSF has bought Kenya’s Eurobonds, it stands to earn annual interest of between 6.3 percent and 9.75 percent, based on the range of coupons on the six outstanding bonds that mature between 2027 and 2048.
Other Kenyan firms, including Equity Group and Centum Investment Company, have in the past bought Eurobonds to diversify their investment portfolio mix and take advantage of capital gains whenever global sovereign paper prices rally.
The NSSF also increased its exposure to private equity (PE) and unlisted securities to Sh5.5 billion, from Sh787.9 million in June 2023.
The Retirement Benefits Authority (RBA) started allowing pension funds to invest in PE funds in 2016, and in the period since the approval, they have been among the fastest growing asset classes in the industry.
In the year to June 2024, pension funds raised their PE investments by 63.4 percent to Sh8.8 billion, trailing only offshore investments—68.8 percent to Sh39.04 billion— in relative growth over the period.
With its exposure of Sh5.5 billion to PE funds, the NSSF was the main driver in the growth of private equity investments in the pensions industry.
The NSSF’s emphasis on asset diversification has come at a time when its higher contributions by members have raised its total assets to Sh402 billion, from Sh313.9 billion in June 2023.
The fund’s member contributions more than doubled to Sh62.3 billion from Sh26.87 billion in 2023, courtesy of the enhanced statutory deductions under the NSSF Act of 2013.
Contributions to the fund were enhanced starting February 2023 following the implementation of the NSSF Act 2013 after a decade-long court battle.
The new rates kicked in with an increase of a member’s ceiling contribution from Sh200 per month to Sh1,080—matched by the employer— in the first year. In the second year, starting February 2024, the rate was raised to Sh2,160, before going up again to Sh4,320 starting February 2025.
Next year, the contribution cap will go up further to Sh6,480 per month, and finally to Sh8,640 per month in 2027.
The NSSF’s largest investment option remains government bonds at Sh253.8 billion, representing 63.1 percent of total assets. The bond investments went up by 36 percent or Sh67.2 billion in the year to June 2024.
Listed equities are the NSSF’s second largest investment at Sh61.2 billion or 15.2 percent of total assets, having gone up from Sh52.9 billion a year earlier.
The fund, however, cut its exposure to short term investments in the period. Its stock of Treasury bills fell from Sh1.2 billion to Sh8.8 million, while term and demand deposits in banks declined by Sh3.5 billion to Sh11.4 billion.
Investments in property remained little changed at Sh35.39 billion, compared to Sh35.5 billion in June 2023.
