Pension funds post 7.1pc return in first quarter

The allocation to fixed income assets —which include government securities and term deposits— is the highest among the various asset classes utilised by the funds at 81 percent.

The returns from these assets therefore carry a larger weight in the overall performance of the schemes, compared to equities, property and offshore assets which had allocations of 12 percent, five percent and two percent respectively as at March 2025.

In the period, returns from equities investments stood at 4.6 percent, falling from 27.7 percent in the first quarter of 2024, while offshore assets returned a negative yield of 5.3 percent, compared to a return of negative 9.1 percent last year.

Overall, the returns for pension assets beat inflation, which stood at 1.4 percent over the three-month period, and 3.6 percent in the 12-months to March 2025.

Inflation erodes the real value of returns earned by—and eventually paid out to— pension savers. Last year, the annual return for pension funds of 28.8 percent comfortably beat the average inflation of 4.52 percent, while 2023 had seen inflation of 7.7 percent wipe out the returns of 1.6 percent. Zamara analysed 409 schemes with Sh1.26 trillion of assets under management in the survey.

On the fixed income end, interest rates on government securities fell in the quarter as the Central Bank of Kenya (CBK) continued with its rate cuts, which have seen the base rate brought down to 10 percent from 13 percent in August 2024.

Bond yields have therefore fallen in tandem, meaning that new securities issued are paying less compared to the ones floated last year.

However, this has also caused rise in bond prices in the secondary market at the Nairobi Securities Exchange (NSE), handing the funds an upward revaluation of their existing bond holdings.

Bond yields and prices at the secondary market feature an inverse relationship where a rise in one signals a decline in the other.

In the equities market, growth in investor wealth has slowed this year compared to the first quarter of 2024, reflecting the high base effect of the sharp gains the market made last year.

In the year to date, the NSE has added Sh39.8 billion in market capitalisation (the measure of investor wealth) to Sh1.98 trillion. In comparison, the first quarter of last year saw the NSE make a gain of Sh327.9 billion, having come off a low base in 2023 when it was in a bear run.

It ended 2024 with a Sh500 billion valuation gain, turning around a decline of Sh550 billion reported in the previous year.

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