New wave of special funds shakes up Kenyan finance

Rising demand for investment products that provide domestic retail investors in Kenya with exposure to global financial markets is driving new growth for the country’s banks. Standard Investment Bank (SIB), which offers the Mansa X Special Fund to cater to this demand, has emerged as one of the largest players in this fast-growing corner of the market.

Launched in January 2019, Mansa X was the first fund to be licensed by Kenya’s market regulator under the “special fund” category. It enables investors to diversify their portfolios beyond local markets by investing in financial instruments in the world’s major global stock exchanges in New York, London, Frankfurt, Hong Kong and other financial centres.

The fund has grown rapidly since its inception, with its assets under management (AUM) surpassing many of the country’s large traditional funds that focus exclusively on domestic financial markets. According to data published by Kenya’s capital markets regulator, Mansa X’s AUM was Sh34.23bn ($264m) in September 2024, representing 10.8% of total assets managed by collective investment schemes in the country. This makes it Kenya’s third largest managed fund – after Sanlam Unit Trust, which had assets worth Sh46.8bn ($361m), accounting for 14.8% market share, and CIC Unit Trust, which managed assets valued at Sh70.32bn ($540m), translating to a 22.3% market share.

Capturing investor inflows

Nahashon Mungai, executive director of global markets at SIB, is the portfolio manager who oversees Mansa X. He tells African Business that the fund has managed to capture strong investor inflows in recent quarters, sustaining the rapid pace of growth in AUM that it has achieved in recent years.

“Right now we’re managing about Sh54bn ($416m),” he says, noting that the fund’s ability to consistently outperform domestic markets has been a major draw for investors. “Returns have been good and we’ve managed an average of 17.5% net of fees in the past five years.”

By contrast, money market funds focusing on domestic assets such as government securities have returned much less.

The attraction of these funds is largely driven by local interest rates. With the current yield on Kenya’s 364-day treasury bill at 10.47% – following recent central bank rate cuts – funds like Mansa X are increasingly attractive to Kenyan investors seeking returns.

“Our strong returns continue to be simply a function of a lot more assets being traded,” Mungai says, noting that the fund invests in equities, indices, ETFs [exchange-traded funds], commodities, precious metals, fixed income and interest rate products.

“All those products combined will typically tend to outperform a fund manager who may have access to one or two asset classes at most.”

“Kenyans for a very long time were just restricted to local assets. We were the first fund to let you invest in shillings yet get exposure to, for example, a stock like Facebook or Alphabet. This created a lot of excitement,” he says.

He points out that the fund’s ability to go both long and short has been a key factor that has enabled it to earn consistent returns and retain investors in times of broader market turbulence.

Welcoming competition

The rapid growth of Mansa X has inspired more investment banks in Kenya to launch their own special funds, offering investors exposure to global markets. Mungai is not unnerved by the prospect of increased competition that this development represents.

“More than five new special funds have been licensed by the capital markets authority in the past year. I’m not worried about similar funds. This is finally investment banks and fund managers doing their job. It’s time for people [in the industry] to do what investors pay them for,” he says.

Faida Investment Bank (FIB) is one of the newer entrants, with its Oak Special Fund, which recorded rapid growth in its AUM in its first year of operations.

Ian Kahangara, director of global markets and chief investment officer at FIB, tells African Business that the fund, which was launched in February last year, closed 2024 with Sh927m ($7.2m) in AUM. This grew to Sh1.4bn ($10.8m) in January and 2.05bn ($15.8m) in February.

“We’re quite ambitious for this year and our targeted return is 20% net after fees for our Kenya shilling fund. That was our target for last year and we surpassed it, achieving 29.38%,” he says.

Both SIB and FIB have introduced dollar-denominated special funds to tap into the growing demand for investment products by Kenyans abroad and domestic investors earning in foreign currency.

Optimistic outlook

Looking forward, Kahangara is confident that Oak Special Fund and the broader industry will continue growing robustly.

He cites improvements in financial literacy and shifts in how Kenyans think about money and investments – especially among the upper middle class and high net worth individuals – as major tailwinds for the industry. “We’re dealing with knowledgeable and sophisticated clients. This is an informed investor,” he says.

Mungai concurs with this assessment, noting that there was a time not too long ago in Kenya when real estate was the only game in town for local investors with surplus cash to risk.

“If you did not own land or a house you were not seen to invest your money wisely. However, when people are in emergencies, one of the things they come to realise is that it’s not so easy to sell land or put your house on the market,” he notes.

“They realised there are other ways to make money and there are funds that are out there that can do the work for you,” he says, explaining that this realisation has led more retail investors to embrace portfolio investments and managed funds.

“At the beginning a lot of people thought that the only people who are going to understand this product will be institutional investors. But it turned out your average Kenyan aspirational middle-class person knows about similar funds that exist globally,” Mungai says.

Risk management

The capital markets regulator has set a minimum investment requirement of Sh100,000 ($772) for special funds, barring investment banks from accepting funds below this amount from the public. However, FIB and SIB have instituted even stricter requirements. Oak’s special fund mandates a minimum investment of KSh 500,000 ($3861), while Mansa X requires at least KSh 250,000 ($1930).

This is to ensure that the distribution of these products is limited to sophisticated investors who understand the risks of investing in a fund that employs complex trading strategies, including the use of leverage and short selling.

Mungai believes that as financial literacy improves, regulators could reduce minimum capital requirements for special funds, allowing more of the investing public to participate.“A sophisticated investor does not necessarily mean an investor with money. We have university students who are knowledgeable but can only afford Sh10,000 ($77),” he points out.

Mungai says that, with the industry attracting new players, the race to win over investors is on. Investment banks and the industry regulator need to maintain a laser focus on risk management. Fund managers should not chase returns at the expense of prudent oversight of risk and liquidity, he argues.