Largest Sovereign Wealth Fund’s Investment Journey in Kenya

What is a Sovereign Wealth Fund?

A Sovereign Wealth Fund (SWF) is a state-owned investment fund or entity that is commonly established from balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, governmental transfer payments, fiscal surpluses, and/or receipts resulting from resource exports.

The definition of sovereign wealth fund excludes, among other things, foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes, state-owned enterprises (SOEs) in the traditional sense, government-employee pension funds (funded by employee/employer contributions), or assets managed for the benefit of individuals.

Facts

• •SWF’s may invest indirectly in domestic industries
• •SWF’s tend to prefer returns over liquidity, they have a higher risk tolerance.

Sovereign Wealth Funds may have their origins in:

• •Commodities – Created through commodity exports, either taxed or owned by the government
• •Non-Commodities – Usually created through transfer of assets from official foreign exchange reserves.

Norges Bank Investment Management

Profile

Right, so now we have an idea what a Sovereign Wealth Fund is. So which SWF has been investing in Kenya? One word Norway. Yes Norwegian people have an exposure in Kenya through The Government Pension Fund Global. This is a fund which was set up in 1990 to underpin long-term considerations when phasing petroleum revenues into the Norwegian Economy.

Norges Bank Investment Management manages the fund on behalf of the Ministry of Finance. The fund has a market value of 7 Billion Norwegian Kroner.

The fund has invested in 9,000 companies spread across 75 countries which comprises 1.3% of the world’s listed companies and 2.4% of Europe’s listed companies.

The fund generated an annual return of 5.6 percent between 1 January 1998 and the end of 2015. After management costs and inflation, the annual return was 3.7 percent.

Investment Strategy

The fund invests:

• •60% Equities
• •35 – 40% Fixed Income
• •5% Real Estate

The fund aims to use the oil fund’s long term outlook and considerable size to generate high returns and safeguard wealth for future generations.

Kenyan Exposure

The fund began investing USD 4,994,570 in Kenya with an exposure to 13 listed companies and as at the end of 2015 it had investments worth USD 133,676,188 in 12 companies.

Below is a demonstration of the investments made in various companies for the past four years:

2012

Total Invested: USD 4,994,570

Companies

1. •Athi River Mining Ltd – USD 52,481
2. •Barclays Bank of Kenya Ltd – USD 533,649 (Ownership 0.05%)
3. •Co-operative Bank of Kenya Ltd – USD 248,837 (Ownership 0.04%)
4. •East African Breweries Ltd – USD 1,593,518 (Ownership 0.07%)
5. •Equity Bank Ltd – USD 110,806 (Ownership 0.01%)
6. •KenolKobil Ltd – USD 243,453 (Ownership 0.11%)
7. •Kenya Commercial Bank Ltd – USD 254,543 (Ownership 0.02%)
8. •Kenya Electricity Generating Co Ltd – USD 11,753 (Ownership 0.01%)
9. •Kenya Power & Lighting Ltd – USD 82,180 (Ownership 0.02%)
10. •Mumias Sugar Co Ltd – USD 2,487
11. •Nation Media Group – USD 418,139 (Ownership 0.1%)
12. •Safaricom Ltd – USD 1,339,553 (Ownership 0.06%)
13. •Standard Chartered Bank Kenya – USD 103,171 (Ownership 0.01%)

2013

Total Invested: USD 94,961,801

Companies

1. •ARM Cement – USD 3,034,481 (Ownership 0.59%)
2. •Bamburi Cement – USD 2,497,102 (Ownership 0.28%)
3. •Barclays Bank of Kenya – USD 2,468,848 (Ownership 0.22%)
4. •Co-operative Bank of Kenya – USD 2,312,717 (Ownership 0.27%)
5. •East African Breweries Ltd – USD 19,021,503 (Ownership 0.72%)
6. •Equity Bank – USD 4,875,297 (Ownership 0.37%)
7. •KenolKobil – USD 608,058 (Ownership 0.35%)
8. •Kenya Airways – USD 1,310,038 (Ownership 0.58%)
9. •Kenya Commercial Bank – USD 15,769,369 (Ownership 0.97%)
10. •Kenya Electricity Generating Co – USD 451,143 (Ownership 0.13%)
11. •Kenya Power & Lighting Co- USD 2,015,316 (Ownership 0.63%)
12. •Mumias Sugar Co. – USD 1,330,002 (Ownership 2.31%)
13. •National Bank of Kenya – USD 221,205 (Ownership 0.24%)
14. •Nation Media Group – USD 6,073,386 (Ownership 0.89%)
15. •Safaricom – USD 28,539,414 (Ownership 0.57%)
16. •Scan Group – USD 796,596 (Ownership 0.38%)
17. •Standard Chartered Bank Kenya – USD 406,331 (Ownership 0.04%)
18. •TransCentury – USD 2,737,912 (Ownership 3%)
19. •Uchumi Supermarkets – USD 493,083 (Ownership 0.82%)

2014

Total Invested: USD 83,995,579

Companies:

1. •ARM Cement – USD 7,782,102 (Ownership 1.65%)
2. •Bamburi Cement – USD 5,311,611 (Ownership 0.95%)
3. •Co-operative Bank of Kenya – USD 1
4. •East African Breweries – USD 18,494,817 (Ownership 0.69%)
5. •Equity Bank – USD 1,278,575 (Ownership 0.06%)
6. •Kenya Commercial Bank – USD 18,157,958 (Ownership 0.97%)
7. •Kenya Reinsurance Corporation – USD 1,019,893 (Ownership 0.77%)
8. •Mumias Sugar Co – USD 16,403 (Ownership 0.05%)
9. •Nation Media Group – USD 5,797,034 (Ownership 1.06%)
10. •Safaricom – USD 20,717,283 (Ownership 0.33%)
11. •Scan Group – USD 5,419,902 (Ownership 2.86%)

2015

Total Invested: USD 133,676,188

Companies

1. •ARM Cement – USD 4,636,092 (Ownership 2.29%)
2. •Bamburi Cement – USD 5,919,191 (Ownership 0.95%)
3. •BOC Kenya – USD 230,678 (Ownership 1.18%)
4. •CFC Stanbic Holdings – USD 5,172,661 (Ownership 1.62%)
5. •East African Breweries – USD 31,350,850 (Ownership 1.49%)
6. •Equity Group – USD 24,764,418 (Ownership 1.68%)
7. •Kenya Commercial Bank – USD 20,049,307 (Ownership 1.55%)
8. •Kenya Power & Lighting Co – USD 5,208,013 (Ownership 2.07%)
9. •Nairobi Securities Exchange – USD 924,145 (Ownership 1.96%)
10. •Nation Media Group – USD 3,194,562 (Ownership 0.91%)
11. •Safaricom – USD 29,045,687 (Ownership 0.45%)
12. •WPP Scan Group – USD 3,180,584 (Ownership 2.86%)

Uganda

The fund has invested in one company i.e. Umeme Ltd with an Equity Investment worth USD 2,310,967. This investment was made in 2015.

Tanzania

In 2015 the fund acquired a 0.67% in Shanta Gold Ltd with a total value of USD 215,410 invested. Note that Shanta Gold Ltd is a company incorporated in Guernsey.

Exclusion of Companies

Norges Bank decides on the exclusion of companies from the fund’s investment universe, or to place companies on an observation list. The decisions are based on recommendations from the Council of Ethics appointed by the Ministry of Finance.

Product Based companies which are excluded are companies which deal in:

• •Production of Antipersonnel landmines
• •Production of cluster munitions
• •Production of Nuclear Weapons
• •Production of Tobacco

Companies which are involves in certain misconducts are excluded such as:

• •Serious violations of human rights
• •Severe environmental damage
• •Gross corruption
• •Serious violations of individuals’ rights in situations of war or conflict
• •Other particularly serious violations of fundamental ethical norms

As you can see the company takes ethical matters very serious and they make responsible investments. A company like British American Tobacco Plc which has a subsidiary in Kenya (BAT Kenya) was added to the exclusion list on 31 December 2009. This explains why Norges Bank has not made an investment in BAT Kenya though the company has solid fundamentals.

Source: (Norges Bank Investment Management, Sovereign Wealth Fund Institute, Kenyan Wall Street)

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