Unit Trust Funds (UTF) assets recorded an annualized growth of 1.1 percent in Q1’2020, compared listed bank deposits which grew by 14.3 percent in Q1’2020.
Mutual Funds/UTFs to GDP ratio stood at 5.4 percent, which is still very low compared to global average of 61.8 percent.
UTFs are collective investment schemes that pool money together from many investors and are managed by professional Fund Managers, who invest the pooled funds in a portfolio of securities to achieve objectives of the trust.
In Kenya, Money Market Funds is the most popular Unit Trust Funds investment with a market share of 88.2 percent as of Q1’2020, an increase from 87.0 percent in 2019.
The overall Assets under Management (AUM) of the industry grew at a rate of 0.32 percent to Ksh76.3 billion in Q1’2020, from Ksh76.1 billion as at FY’2019.
In the last two-years, Assets under Management of the Unit Trust Funds have grown at a compounded annual growth rate of 17.0 percent to Ksh76.1 billion in 2019 from Ksh55.6 billion recorded in 2017.
According to the Capital Markets Authority, there are 24 approved collective investment schemes made up of 92 funds in Kenya as of Q1’2020. Out of the 24 however, only 19 are currently active while 5 are inactive.
CIC Asset Managers remains the largest overall Unit Trust Fund Manager with an AUM of Ksh29.8 billion in Q1’2020, from an AUM of Ksh29.7 billionn as at 2019 translating to a 0.9 percent annualized AUM growth.
CIC Asset Managers remains the largest overall Unit Trust with a market share of 39.0 percent, an decline from 44.1 percent in 2019.
In terms of growth, Co-op Trust Investments recorded the strongest annualized growth of 424.5 percent, with its market share declining to 0.01 percent from 0.9 percent in 2019. Stanlib Kenya recorded the largest decline of 103.8 percent, with its market share declining to 1.9 percent from 2.5 percent in 2019.
Cytonn Money Market Fund had the highest effective annual yield at 11.0 percent against the industrial average of 8.7 percent.
This comes at a time most money markets funds have been pushing to have CMA expand eligibility of Trustees of Unit Trust Funds to include non-bank Trustees such as Corporate Trustees, since most banks have UTFs, hence refuse to be trustees of UTFs, which is a legal requirement.
However, CMA has been adamant a move that is seen as stifling competition from non-bank UTFs.
“The current situation where all Trustees are banks severely constrains capital market growth because of the inherent conflict of interest where banks are Trustees in a market where they are also competing for funds. Banks are not best suited to be Trustees in complex financial products, hence this restrains the market to plain vanilla investments such as bank deposits and government debt,” notes a report from Cytonn.
The players have also been urging CMA to allow UTFs to have more than one custodian, since having one custodian makes it very expensive for Unit Holders to invest.
“For example, say an investor has Ksh1,000 at Equity Bank and wants to invest in a Unit Trust Fund held in Custody say at KCB bank the investor will have to transfer the Ksh1,000 from Equity to KCB and may incur up-to Ksh100 in charges, which is already a 10.0 percent transaction cost before investment. So even if they invest in a money market fund returning 10.0 percent, it would take a whole year just to recoup back their inward transaction cost,” adds Cytonn.
CMA has also refused to reduce the minimum investments to reasonable amounts.
“Sector funds, in addition to cumbersome incorporate, have high minimums of Ksh1,000,000, which is way above the median wage of Ksh50,000. Having sector funds minimum that is 20 times the national income seems unreasonably high,” notes the report.
CMA has also severally been accused of conflict of interest, since some of its executives are market players.
Since 2015, the authority has been under James Ndegwa as the chairman. Unknown to many, James Ndegwa is the chairman of the former NIC Bank, which recently merged with CBA to form the NCBA Bank, meaning he is a market player with products competing with those of other entities he is supposed to regulate.
James Ndegwa is affiliated to three money markets funds – ICEA money market fund, NCBA money market fund, and Stanlib money market fund.
CMA rules require that only a bank can be a trustee but has gone ahead and selected five banks as trustees which include KCB, Cooperative Bank, Stanbic, National Bank and HF Bank. What this means is that fund managers have to get approval from these trustees as to how their funds are managed, and it is likely that some rogue trustees favour investments back into the banking sector.
This is despite the fact that banks are competitors in the money markets through Fixed Deposit products they issue and or Money Market Funds managed by Fund Managers affiliated to the bank.
According to World Bank data, in a developed economy, businesses rely on banks for only 40 per cent of their funding, the balance of 60 per cent comes from the capital markets sector. However, in Kenya, businesses have to rely on banks for 95 per cent of their funding because banks have constrained the capital markets function.
Secondly, savers have to depend primarily on bank controlled products for their interest savings, which is usually lower compared to if they had open access to capital markets products.