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Supporting regional economic growth

Anna Lyudvig
May 23, 2019, 4:29 p.m.

Word count: 1165

Britam Financial Holdings has recently approved an anchor investment in Tiserin Capital, Africa’s first south-south private equity fund. The investment is a breakthrough in the region’s financial markets highlighting the important role pension funds, insurance and other local investors can play in supporting long term investments in the region. We caught up with Kenneth Kaniu, Britam Asset Managers CEO, to learn more about the deal, the firm, and the needs and constraints of institutional investors in Kenya and East Africa.

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Britam Financial Holdings has recently approved an anchor investment in Tiserin Capital, Africa’s first south-south private equity fund. The investment is a breakthrough in the region’s financial markets highlighting the important role pension funds, insurance and other local investors can play in supporting long term investments in the region. We caught up with Kenneth Kaniu, Britam Asset Managers CEO, to learn more about the deal, the firm, and the needs and constraints of institutional investors in Kenya and East Africa.

Anna Lyudvig (AL): Please tell us about Britam Asset Managers.

Kenneth Kaniu (KK): We are a subsidiary of Nairobi Securities Exchange listed Britam Holdings PLC, which has a 53 year history of providing insurance, asset management and property investment services to retail and institutional clients across seven African geographies. Britam Asset Managers (BAM) was launched in 2004 and is a buy-side multi-asset fund manager with KES160bn ($1.6bn) in AUM offering capability across listed and alternative asset categories for retail and institutional clients. 

AL: Can you tell us more about your institutional clients?

KK: On the institutional side, segregated pensions is a major market segment and we manage money for public and private sector sponsor retirement assets. This ranges from major public schemes like the National Social Security Fund to smaller private ones. We also manage balance sheet assets for local insurance companies and state owned enterprises such as major parastatal entities. We also manage several university endowments and count some foundations as clients. 

AL: What is your investment strategy and what is your investment philosophy?

KK: We are a long only buy-side asset manager who believes in conducting fundamental top down research to identify investment opportunities that are in line with client mandates. We have a strong research discipline and apply that methodology for listed equity and fixed income markets. We have also built a capability in alternative assets and have a good track record in real estate asset management on both the development and income side and are an active LP investor on the private equity side so as to diversify investment portfolios and maximize investment returns. 

AL: What are the needs and constraints of institutional investors in Kenya (and East Africa)?

KK: Investment assets in the hands of fund managers on the retirement side have tripled over the last nine years to KES1.1trn ($11bn) as at December 2018, however we have not seen the growth in capital market instruments keep pace with this growth. In Kenya and East Africa, we have seen a dearth of new listings on the stock exchange in the last few years and have even seen several delistings. Liquidity and free-floats continue to pose a challenge. On the corporate bond side, we have seen several issuers fail make timely repayments of Principal and interest and even default altogether which has raised levels of investment risk and led to the questioning of investment structure and platform that issuers and advisors have been using. This has led to fewer issues coming to market. As such a lot of flows have been channeled into the fixed income government securities market with many institutional portfolios having well above 50% of their asset strategy invested in government bonds. Offshore equity and bond allocations have been fairly low in recent years and hence the importance and rise of alternative assets in the investment strategy of many funds. According to Kenya’s Retirement Benefits Authority (Kenya’s pension sector regulator), as at December 2018 the average scheme had allocated up to 20% of its assets into property, which has gobbled up a large share of assets. Investor awareness into new asset categories remains a challenge for the average asset management customer.

AL: Where do you currently see investment opportunities?

KK: There are lots of opportunities in new products such as REITS which will provide the liquidity and price discovery that many funds are looking for. I see passive investment products like Index funds and ETFs are opportunities in the near term in getting new kinds of investors onboard. On the alternative side, there is a good opportunity in real estate asset management on yield enhancement activities and the structuring of well diversified and performing real estate portfolios. There are also opportunities in private equity and particularly expansion capital in the mid cap market segment. The sectors that stand out for us are agribusiness, education, fintech, financial services and consumer sectors.

AL: You’ve recently invested in Everstrong Power Ltd, can you touch more on this deal? Why is this deal important?

KK: We invested into Everstrong Power, which is the investment vehicle for Everstrong Capital, a US based energy and infrastructure private equity fund making investments into Africa. This deal gave us access to the USD cash flows of a thermal power plant in Kenya that had a track record of generating and producing power into the national grid via a well structured power purchase agreement. We made the investment as our first foray into the energy space so as broaden our investment strategy and secondly diversify by currency. It is also a long term investment and in so doing allowed us to match our long term liabilities into a similar life asset. 

AL: Do you have other deals in the pipeline?

KK: We do have other deals in the pipeline and we recently made a public announcement about our decision to provide anchor capital and support to Tiserin Capital, an East Africa based private equity fund. It is the first time that a local institutional investor has made the decision to anchor a private equity fund and we hope that this decision will not just catalyze growth for Tiserin, but for the broader private equity industry in East Africa as a whole. Tiserin Capital is a mid cap market private equity fund with a focus on greater Eastern and Southern Africa with a focus on health care, education, financial services and fin tech business. It is currently fund raising for at least $70m for Fund 1. 

AL: What challenges do you face as an asset manager?

KK: Building and maintaining profitable distribution infrastructure on the retail side has been a big challenge for many asset managers. Use of an intermediated model had proven to be fairly pricey and the challenge is now to move more towards disinter-mediated model by making investments into technology and IT and new approaches such as robo-advisors and so on. We have also seen margin erosion on the institutional client side by over 60% which had continued to chip away at the profitability of the asset management industry over time.

AL: What’s your view on the asset management sector in Kenya?

KK: The industry is broadly positive save for falling margins on the institutional side. Retail margins are 7 to 10 times larger than on the institutional side and that is where the real growth and profitability will come from in the future. Higher margin alternative assets also hold a lot of promise. 

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