Retail investors spooked by a long streak of low returns on the Nairobi Securities Exchange (NSE) have shifted their cash to local fund managers, an analysis shows.
The retail investors, while largely inactive in equities trading, have flocked to the capital markets by latching onto collective investment products offered by fund managers to get exposure in money-market funds, fixed deposits, dollar funds, fixed income, and even stocks.
Some 1.2 million Kenyans are for instance invested in unit trusts as of June 2024, a number that rivals both active share accounts with the Central Depository and Settlement Corporation and equity trading accounts and sign-ups on the Central Bank of Kenya’s digital trading platform, Dhow which allows participation in primary government securities auctions.
The number of licensed fund managers has significantly increased in recent years on the backdrop of the popularity of collective investment schemes among retail investors.
An analysis showed that 16 of the 43 licensed fund managers have set up shop in the last two years with the Capital Markets Authority (CMA) routinely handing out new licences.
CMA, for instance, issued four new fund manager licences between January and June this year including VCG Asset Managers Limited, Avocarp Asset Managers Limited, and Myxeno Investment Management Limited.
The third quarter of 2022 saw the highest number of fund manager licenses issued at four, including Star Capital Management Limited, Investment Partners Limited, Etica Capital Limited, and Mayfair Asset Managers Limited.
Einstein Kihanda, the CEO at ICEA Lion Asset Management Limited said retail investors have found pooled investments as an alternative to investment classes such as stocks in the face of reduced market activity, giving rise to the multiplication of active fund managers.
“If you remember 15 years ago, we had significant participation of retail investors in the Nairobi Securities Exchange (NSE) at a time when we had initial public offerings in the market. With the lack of IPOs and opportunities in the market, there has been a real deficiency in retail investor participation,” he said.
Legacy fund managers like ICEA Lion have seen increased competition as the market sees a proliferation of new local fund managers.
Banks have also come along for the ride by forming their own asset management units to take advantage of the high retail investor interest in pooled products.
New entrants have meanwhile diversified their product offerings in their quest to differentiate themselves in an industry offering highly comparable products.
“We have come to the market with very different products, some of our products are perhaps new in the market. We have family offices for instance. This is a space in which the market is deeply in need of and a great differentiator for us. We are also working with focus groups on financial literacy,” Arvocap co-founder and CEO Monicah Mwaniki said.
Fund managers charge fees as their primary revenue line. The fees are capped at two percent for collective investment schemes or unit trusts.
The schemes have latched on technology and convenience to grow assets under management while the high-interest rate regime has allowed fund managers to offer enhanced returns to retail investors.
The assets under management of unit trusts for instance hit Sh254 billion in June while annualised returns presently stand at double digits.
CMA has been keen on the rise in the number of fund managers based on its strategic objective of increasing the customer base and democratising wealth.
The regulator is seeking increased uptake of capital markets products and services.
The CMA targets to grow the number of investors by three percent each year and increase the value of assets under management by 15 percent by the 2027/28 financial year.
