Special Funds is the new catchword in investment circles as the players in this segment fall over each other to attract the attention of investors with such new funds.
Britam is the latest entrant with its recent launch of the Kenya Shilling denominated Britam Multi-Asset Special Fund and the US$ Britam Enhanced Global Equities Special Fund.
Special Funds are a category of collective investment schemes designed to give investors access to more specialised strategies or asset classes.
“The recent increase in Special Funds reflects a growing demand for diversification beyond traditional Kenyan equities, government securities and money-market funds, alongside a more developed regulatory framework,” CFA Dedan Maina told Business Today.
Special Funds: New Players in this space
Kenya’s investment-management industry is now entering a more competitive phase, with several Special Fund entering the market. A number of stockbrokerage firms and fund managers are also speeding up to upgrade their licenses, ostensibly to expand the range of products that they can avail to investors.
Absa Bank Kenya is among those who have already received approval from Capital Markets Authority and are gearing to launch two Multi Asset Special Funds, one in US$ and the other denominated in the local currency.
Zimele Asset Managers has also launched its US$ Money Market Fund, US$ Fixed Income Fund and a Green Investment Fund LLP — targeting small and growing green businesses across Kenya and East Africa.
Players in the investment banking business who have upgraded their permits include Kestrel Capital, which upgraded from Stockbroker to Broker-Dealer.
Hass Crest Capital has received a Fund Manager licence while Livonna Advisory Partners has received an Investment Adviser licence from Capital Markets Authority. Further, Liaison Wealth has received a Corporate Trustee licence.
Seasoned players in the Special Funds space include Standard Investment Bank(SIB) with its Mansa-X Special Fund, whose financial performance has been exceptional. “The Kenya Shilling Fund and the Dollar Fund performed exceptionally well in the second quarter of this year, exceeding the first quarter,” said FA Nahashon Mungai, Executive Director for Global Markets at Standard Investment Bank.
WHAT DOES THIS MEAN FOR THE NSE?
This is more than simply “more funds for investors.” It could gradually reshape the competitive dynamics of Kenya’s capital markets.
New fund managers need to deploy capital. Depending on their mandates, this can translate into additional demand for listed equities, fixed income and other investable securities.
More active institutional participants can increase trading volumes and improve price discovery, particularly in liquid counters, through the Special Funds deployment.
As more fund managers compete for attractive investments, fundamentally strong and liquid Nairobi Securities Exchange(NSE) counters could receive greater attention. This may support valuations — but also make attractive entry points harder to find.
However, more institutional participation does not automatically mean a one-way market.
Different managers have different mandates, liquidity needs and risk appetites. Portfolio rebalancing, tactical allocations and profit-taking could increase trading activity and short-term price movements.
With the entry of more Special Funds, investors now have more choices across Kenya Shilling and US$ denominated money-market, fixed-income, multi-asset, global-equity and thematic/green strategies.
This means fund manager will increasingly have to compete on performance, fees, risk management, transparency and investor experience — not simply on brand recognition.
THE BIG PICTURE
The important development is not any single new fund. It is the expansion of Kenya’s investment-management ecosystem. This will result into more managers, products, capital pools, competition for assets and potentially more market participation.
For the NSE, the entry of more special funds could be positive for liquidity, institutional participation and price discovery, while potentially introducing greater short-term volatility as new pools of capital enter and existing managers reposition.
For investors, these special funds offer an opportunity not only to buy simply because “new money is coming.” They have a chance to identify quality businesses, attractive valuations and sustainable earnings before increased institutional competition fully reflects them in prices.
More money entering the market can lift the tide — but valuation still determines which boats are worth owning. An investor make money in the special funds through capital appreciation, income distributions, or both, depending on what the fund invests in and whether it distributes or reinvests the income.
The key risks include market, interest-rate, credit, liquidity, currency, manager and fee risks. So regulation does not mean the investment is risk-free. The most important question is therefore not “Is it a Special Fund?” but “What exactly is underneath it, how does it generate returns, what can go wrong, and what am I paying for it?”
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