Pension fund investments in alternative asset classes such as private equity (PE) rose by a fifth in the first half of this year to cross the Sh1 billion mark for the first time in search of returns in a difficult environment caused by the Covid-19 outbreak.

Industry data provided by the Retirement Benefits Authority (RBA) shows that although the share of PE and venture capital is still small in the overall register of assets under management, it is growing faster than any other class, albeit from a low base.

The RBA report for June 2020 showed that the investments in PE and venture capital stood at Sh1.17 billion, up from Sh969 million in December 2019 and Sh910 million in June 2019.

“Investment in alternative assets by schemes has gained traction with an inclusion of Private Equity & Venture Capital as an assets class. Investments increased by 20.74 percent to Sh1.17 billion in June 2020, accounting for 0.09 percent of the total assets,” said RBA in its industry report.

Pension funds started investing in private equity in 2016 following a change in the Retirement Benefits Act 2016 that allowed them to put in up to 10 percent of their assets in this class. PE investments stood at Sh220 million at the end of 2016.

Overall, the industry assets under management stood at Sh1.323 trillion at the end of June 2020, having grown by 1.9 percent from December 2019’s Sh1.298 trillion.

Government securities continued to dominate, accounting for 44 percent of the total assets under management, having grown by 6.7 percent in the period.

Property was second, accounting for 18.6 percent, while investments in guaranteed funds accounted for 16.7 percent and quoted equities for 14.17 percent.

“Investment in quoted equities dropped by 17.8 percent during the period, owing to the volatility in the stock market arising from the Covid-19 pandemic shocks. Investments in listed corporate bonds, offshore, unquoted equities and REITS also dropped during the period,” said RBA.

The funds normally turn to government securities due to the guaranteed positive returns and the risk free nature of this investment class.