Kenya’s fund managers face tough choices in the coming months as they look to reduce growing exposure of their portfolios in the wake of massive withdrawals from pension schemes and a depressed stockmarket ahead of a difficult year.

A bear run at the Nairobi Securities Exchange (NSE) and rising inflation could further depress investments, reducing returns for pensioners and people saving for their retirement, analysts said.

New industry statistics show payments from individuals’ schemes more than doubled to $15.7 million for the six months ending June 30, 2011, from $7.8 million paid in the same period in the previous year, as more savers withdrew part of their retirement benefits.

This followed last year’s amendments to the RBA regulations allowing scheme members to access 50 per cent of employers’ contributions.

The withdrawals left a huge gap in fund managers’ investment portfolio. Return on invested funds is expected to remain flat or fall in 2012 due to declining and shaky share valuations at the bourse and increasing bond interest rates, which have affected bond valuations and this is expected to reflect on pension savings.

The outcome in the return on investment for pension schemes means Kenya is back to the 2008 and 2009 period when contributors earned returns that were lower than the annual inflation rates or negative returns.

Ordinarily, negative returns means that employees leaving employment will receive less than projected pay-outs at a time when households are grappling with the high cost of living.

The pension’s industry regulator Retirement Benefits Authority (RBA) report for the first quarter of 2011 released on Wednesday showed all asset categories exhibited a positive growth, except quoted equities, fixed income and cash, which declined by 5.5 per cent, 7.6 per cent and 26 per cent respectively over the first six months to June 2011.

Over the review period, government securities constituted 34 per cent of industry assets, the largest share with $1.9 billion, followed by quoted equities with $1.5 billion (26 per cent), immovable property with $1 billion (18 per cent) and guaranteed fund investments at $481 million (8.5 per cent) respectively.

With the NSE — a key investment platform for fund managers — expected to remain depressed for the better part of the year, a weak shilling and inflation hovering near 20 per cent, retirement savings are set to continue dipping, exposing pensioners to negative returns in the coming months. Share prices have been sluggish as investors, rattled by double digit inflation, exited the equities market.