Pension funds that allocated a bigger share of their assets to equities and offshore assets secured a returns premium of up to four percentage points in 2025 compared to their peers who adopted a conservative strategy heavy on government bonds and cash deposits.
Analysis of pension fund returns done by fund administrator Zamara and Actuarial Services East Africa (Actserv) shows that the funds that aggressively chased returns through the riskier assets, such as equities, made a weighted average return on investment of 28.3 percent, beating the industry average of 26.3 percent.
Conservative schemes made a return of 24.6 percent, while those which adopted a moderate risk approach returned 27.1 percent.
As per Actserv’s classification, conservative schemes hold between 80 and 100 percent of their assets in interest-bearing securities such as bonds and long-term bank deposits, while conservative schemes keep their bond holdings at between 30 and 69 percent, with riskier equities and offshore assets allocated between 16 and 30 percent.
Zamara considers schemes holding at least 80 percent of assets in fixed income securities to be conservative, while aggressive schemes hold 65 percent and below in such securities.
‘Schemes with higher exposure to equities and offshore assets delivered the strongest long-term results across all time periods measured. Aggressive schemes recorded median returns of 28.1 percent over one year, 19 percent over three years, and 13.7 percent over five years, outperforming more conservative portfolios,’ said Zamara in its report.
‘Gains were driven largely by quoted equities, which delivered a standout median return of a colossal 64.3 percent in 2025.’
The interest-bearing assets comprise government securities, fixed and time deposits, commercial paper, corporate bonds and call deposits, while non-interest bearing assets include equities, offshore investments and property.
Zamara sampled 406 schemes with Sh1.51 trillion in assets under management (excluding property) when analysing the returns from the sector, while Actserv surveyed 408 schemes with a total fund value of about Sh1.37 trillion.
In the equities market last year, funds enjoyed capital gains on their portfolios as the bourse added Sh1 trillion or 51.8 percent in investor wealth to Sh2.94 trillion.
They mainly invest in large blue chip stocks that offer long term price stability and regular dividend distribution. Such firms also have ample liquidity that allows for large ticket purchases for the funds.
In the fixed income segment, interest rates on government securities came down last year in line with the Central Bank of Kenya cutting its base rate from 11.25 percent to nine percent between January and December.
Treasury bonds issued last year-majority of them being reopenings from past issuances-paid investors annual interest of between 11.67 percent and 14.63 percent. In 2024, the returns from bonds peaked at 18.46 percent, which was available on an 8.5-year infrastructure bond sold in February 2024.
As interest rates fell, however, bond prices in the secondary market at the Nairobi Securities Exchange rose, handing the pension funds some capital gains on their holdings. Bond yields and prices at the secondary market feature an inverse relationship where a rise in one signals a decline in the other.
Treasury bill interest rates fell to a range of 7.7 percent to 9.23 percent in December 2025, from 9.8 percent to 11.4 percent at the beginning of the year.
For funds invested in fixed deposits in banks, interest rates declined progressively through the year, settling at 7.28 percent in November from 10.05 percent in January.