Kenyan pension funds lift offshore holdings to Sh105bn amid diversification push

Kenyan pension funds have increased their overseas investments by 25% in the year to June 2026, reaching Sh104.99 billion as managers seek to reduce exposure to domestic market and economic risks.

The growth has directed a larger share of workers’ retirement savings into global technology and developed-market funds, including portfolios managed by BlackRock and Franklin Templeton.

The move comes as Kenya’s pension industry surpasses Sh3 trillion in assets, up from Sh2.5 trillion a year earlier. The expanding capital pool gives fund managers greater capacity to invest beyond domestic financial markets.

Retirement Benefits Authority data shows offshore holdings rising from approximately Sh84 billion in June 2025, with global equity trackers receiving substantial new investment.

The RBA reported that offshore investments achieved 25% year-on-year growth, reaching Sh104.99 billion as managers sought exposure to global technology and developed markets as a hedge against local risks.

Major positions included the BlackRock ISF Developed World Index Fund, valued at Sh14.95 billion, and the Franklin US Opportunities Fund, worth Sh9.66 billion, alongside strong inflows into global equity trackers.

The allocations indicate that pension managers are increasingly using international markets not only to pursue returns but also to limit reliance on Kenya’s economy, currency and domestic asset prices.

Despite the increase, offshore assets remain a modest component of the retirement industry’s Sh3.17 trillion portfolio, representing about 3.3% of total assets as of June 2026.

RBA regulations allow pension schemes to invest up to 15% of their assets overseas. The current offshore allocation remains well below that limit.

Government securities continued to be the industry’s largest investment category at Sh1.5 trillion, accounting for 46.35% of total pension assets. Their share declined as interest rates eased.

Quoted equities gained sharply during the period to Sh439.32 billion, or 14.37% of pension assets, supported by a strong rally on the Nairobi Securities Exchange.

The RBA said both the NSE 20-Share Index and NASI increased by roughly 20% in the first half of 2026, while equity turnover surged 511% to Sh263.87 billion.

This broader diversification effort comes amid rising inflation in the first half of the year. Inflation averaged 5.29%, compared with 4.46% during the second half of 2025.

Inflation peaked at 6.68% in May before easing to 6.41% in June, increasing pressure on pension managers to protect members’ savings from erosion in purchasing power.

Meanwhile, the Central Bank of Kenya lowered its policy rate from 9% in January to 8.75% in February, where it remained through June.

Declining interest rates can reduce yields on newly issued fixed-income investments, encouraging managers to consider equities and other assets with different sources of return.

The sector is also moving beyond its traditional concentration in government debt, with private equity, REITs, commercial paper and other alternative investments recording strong growth.

Private equity rose 44% to Sh43.1 billion, partly due to a Sh10.84 billion increase in existing holdings in Africa Finance Corporation. REITs reached Sh19.61 billion.

Commercial paper and non-listed bonds grew even faster, increasing 141.39% to Sh12.06 billion, according to the regulator’s June industry brief.

Rapid growth in funds flowing into retirement schemes is supporting diversification, giving managers more flexibility to adjust portfolios without materially reducing exposure to established asset classes.

RBA investment rules require pension schemes to diversify their holdings. The authority says these limits are intended to promote safety, returns and risk reduction while ensuring schemes remain able to meet benefit obligations.

Pension contributions reached Sh165.29 billion in the six months to June 2026, up 28.83% from Sh128.30 billion a year earlier, according to the RBA.

The increase reflected the implementation of the NSSF Act, higher contribution limits, improved employer compliance and growth in active scheme membership.

Under the NSSF Act, 2013, tier II contributions are set at 6% of pensionable earnings between the lower limit of Sh9,000 and the upper limit of Sh108,000. This translates to a maximum monthly contribution of Sh6,480 each from employers and employees in 2026.

Under the revised structure, monthly contributions have increased from Sh200 under the previous system.

Higher contributions have strengthened NSSF collections, which rose 35% to Sh83.97 billion in the year to June 2025.

Last year, the National Social Security Fund generated a net investment return of 17% across its portfolio.

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