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Banks help dollar MMFs unlock Eurobond returns
Money market funds remain the largest category of unit trust in Kenya, with assets under management of Sh442.2 billion, accounting for 51.9 percent of the industry's total AuM.
Dollar-denominated money market funds (MMFs) are putting investors' cash into African and global Eurobonds through special debt securities structured by multinational banks, sidestepping regulatory restrictions in search of higher returns amid intensifying competition for clients.
MMFs are, by law, limited to investing in highly liquid short-term debt instruments—with an average maturity of 18 months—such as bank deposits, Treasury bills and commercial paper. This bars them from investing directly in long-term local and foreign bonds, which often pay higher interest rates.
Multinational banks such as Standard Chartered Bank, Stanbic Bank and Absa Bank have, however, structured short-term credit-linked notes derived from African and global Eurobonds, giving unit trusts access to the lucrative securities without breaching investment duration rules.
The lenders hold the Eurobonds on their books as the underlying assets from which they structure the tradable notes that MMFs invest in as one-year deposits.
The banks offer a guaranteed return on the credit-linked notes, with interest payable quarterly to meet the liquidity needs of the collective investment schemes.
"The international banks provide these opportunities because they have exposure to developed markets and global money market funds, as well as the back-office capacity to structure these products," said Jubilee Asset Management portfolio manager Dorcas Mwangi.
"Our task is to examine the documentation and contractual clauses to assess risk and determine how to value these securities within the existing regulatory framework. These assets expand our investment universe, enabling us to maintain attractive returns for investors as our assets under management grow."
The credit-linked notes therefore allow unit trusts to gain exposure to African and other Eurobonds, which typically yield between eight and 12 percent annually.
Unit trusts, particularly money market funds, have grown in popularity among Kenyans seeking professionally managed investment products.
Assets under management (AuM) of collective investment schemes rose to Sh851.7 billion in March 2026 from Sh111 billion five years earlier.
However, falling interest rates have reduced returns on money market funds, including dollar-denominated funds, which now offer annual returns of between 4.1 and 5.6 percent.
Money market funds remain the largest category of unit trust in Kenya, with assets under management of Sh442.2 billion, accounting for 51.9 percent of the industry's total AuM.
Dollar-denominated MMFs manage assets worth Sh22 billion, reflecting the limited range of dollar-denominated investment opportunities within the Kenyan economy.
Overall, the industry holds Sh95.9 billion in foreign currency-denominated assets, with fixed-income dollar funds accounting for Sh49.3 billion and the balance invested in dollar special funds.
The dominance of MMFs is increasingly being challenged by special funds such as Standard Investment Bank's Mansa-X and Faida Unit Trust's Oak Multi Asset Special Fund, which can deliver higher returns because they face fewer investment restrictions.
By the end of March 2026, special funds had increased their assets under management to Sh203.57 billion, representing 23.9 percent of the industry's total, up from Sh86.7 billion, or 17 percent, in March 2025.
A special fund is a collective investment scheme that follows a fund manager's strategy and typically invests in non-traditional assets such as real estate, private equity, offshore equities, derivatives and global commodities.
The structure comes with fewer investment restrictions, allowing fund managers to concentrate on selected asset classes, including higher-risk instruments that can generate superior returns, albeit with greater potential for losses.
Their returns have generally outperformed those of traditional MMFs, which are subject to tighter regulation by the Capital Markets Authority (CMA).
For investors seeking to maximise returns from global investment opportunities, special funds are therefore becoming more attractive than traditional dollar MMFs and fixed-income funds, explaining their faster growth.
