The 2022 Finance Bill has proposed to widen the scope of investments where pension schemes can invest their funds. Previously, pensions could only invest up to 30% of their funds in listed REITs only. Unlisted REITs in Kenya fell under ‘Any Other Assets’ which was not ideal as it required schemes to seek specific trustee approvals and ‘no objection’ letters from the Retirement Benefits Authority (RBA) which was cumbersome and was a potential deterrent for investment into the REIT asset class.
The regulation did not provide for a ‘direct’ investment of pension funds into unlisted REITs. As a result, current and upcoming unlisted REITs would continue to face very small investable amounts in asset allocation which would restrict diversification portfolio actions and overall investment into alternatives such as these that present a more sustainable way into property investments. The extra layer of approvals also meant that pension funds found it easier to go with ‘direct’ deals where the larger allowable limit existed within the RBA investment guidelines.
Once passed, the Finance Bill will amend the RBA guidelines to include unlisted REIT. This will allow up to 30% investment by pensions in both listed and unlisted REITs, thus offering fund managers, trustees a wider investment pool, given the new unlisted REITs in the market and potential upcoming unlisted REITs.