Pension trustees jittery after collapse of Nakumatt, Chase Bank

A decade ago, when Nakumatt Holdings was going under after choking in huge debts, the retailer had Sh4.8 billion in its books held in commercial paper.

It was a portion of the close to Sh40 billion debt the retailer, which was once the largest in the region and the pride of Kenya’s retail chain, owed creditors.

On average, the business had a turnover of Sh52 billion.

This tragic case, which shocked investors and and send jitters across the financial markets, seems to have left a bad taste in the mouths of fund managers and pension trustees.

It has been singled out as one of the reasons why the pension sector and the private capital holders are jittery about alternative asset classes such as commercial paper or corporate bonds offered by businesses.

In a study published last month on the status of the pension sector on the continent, the Nakumatt Holdings case has been highlighted as one of the key reasons why government securities are still preferred.

The report also listed the collapse of Chase Bank and Imperial Bank. These ‘once bitten twice shy’ narratives, coupled with the stipulation that trustees can be held liable for lost investments, make most pension schemes stick with government securities.

“Trustees shall jointly and severally be liable for any appointment of the pooled fund that does not meet the qualifications and requirements set out for pooled funds in these Regulations,” reads the Retirement Benefit Authority (RBA) Act regulations. 

According to the study of Kenya’s pension sector, only three per cent of the sector’s assets under management are in alternative financial instruments.

The largest bulk, 52 per cent, is in government securities, with 13 per cent in property and nine per cent in listed equities (Nairobi Securities Exchange listed firms).

This percentage (of investments in alternative assets) is, however, highest in South Africa with 26 per cent.

The study describes alternative investments to include unlisted equities, private equity, private debt and Real Estate Investment Trusts (Reits), among other alternative asset classes.

“Alternative investments represent a small share of pension portfolios, typically below 10 per cent, except in a few markets such as South Africa (26 per cent), Zambia (17 per cent), Zimbabwe (19 per cent) and Gambia (16 per cent),” reads the Landscape Study: A Comprehensive Assessment of Pension Systems and Asset Management Industry in Africa.

The study has been collectively done by Financial Sector Deepening (FSD) Africa, UK International Development, Africa Pension Supervisors Association and the Pan Africa Fund Managers Alliance (Pafma).

It describes this investment model – where cash is stashed in government securities – as conservatism.

“In most countries, government securities dominate asset allocation, often accounting for 50 to 70 per cent of total assets. Regulatory design, shallow markets, fiduciary behaviour and political economy dynamics are all contributing factors to this,” the study says.

For Kenya, the study explains that the low levels of investment in alternative assets are related to trustee experience and market history.

“Trustees can be held personally accountable for member losses, and because of this legal risk, they tend to adopt conservative stances,” the study says. “The collapse of several corporate bonds in the 2010s (such as Imperial Bank, Chase Bank and Nakumatt) also undermined confidence in private fixed income products.”

“The poor uptake of new instruments reinforces the default government securities, which are liquid, familiar and perceived as defensible if questioned by regulators or beneficiaries.”

Just a year before Chase Bank went under, the institution had received a nod from the Capital Markets Authority (CMA) to raise Sh10 billion through a bond listed on the Nairobi Securities Exchange (NSE).

Similarly, just months before Imperial Bank folded in 2015, the lender was in the market seeking to raise Sh2 billion through a corporate bond. CMA was forced to suspend the trading of the bond once the Central Bank of Kenya (CBK) stepped in to appoint the Kenya Deposit Insurance Corporationas custodian of the bank.

“As a result of this interventionary action by the CBK, the CMA, in accordance with the provisions of Section 22A of the Capital Markets Act, has directed the Nairobi Securities Exchange to suspend the introduction to listing and trading of the corporate bond issued by Imperial Bank, which closed on September 17, 2015. This suspension has been imposed in the public interest and to protect the interests of investors,” read a joint statement dated October 13, 2015, from then CBK Governor Dr Patrick Njoroge and CMA acting Chief Executive Paul Muthaura 

While fear still dictates how pension assets are invested in Kenya, the study shows that the case is different in Nigeria, where diversification of pension assets into alternative investments is to the tune of 15 per cent.

“However, most available private equity funds are denominated in US dollars and currency mismatch has proven a deterrent as pension fund administrators collect contributions in naira and face significant exchange risk when committing to dollar funds,” the study says.

Data from the Retirement Benefits Authority (RBA) shows that as of June 2025, pension assets in government securities stood at Sh1.3 trillion, which is 52 per cent of the assets under management.

Quoted securities come second with Sh255.2 billion, which is 10.08 per cent, followed by unlisted commercial paper Sh5 billion (0.20 per cent) and listed corporate bonds Sh3.8 billion (0.15 per cent).

RBA notes in the industry update that although uptake of alternative assets has been slow over the years, there was a noticeable increase in activity across some classes between June 2024 and June 2025. This is while others experienced a decline.

“The significant uptick in offshore investments and private equity reflects a strong shift toward high-growth opportunities,” the update states.

It adds that the drastic growth in the ‘other assets’ category was mainly driven by investments in Shariah-compliant funds.

“The increased allocation to commercial paper and non-listed bonds indicates a growing interest in niche debt instruments,” says RBA. “The noted decline in allocation to unquoted equities and Reits was due to limited market activity.”