An Analysis of the factors that would influence investment in infrastructure assets by managers of pension funds in Kenya

Submitted in partial fulfilment of the requirements for the degree of Master in Public Policy and Management at Strathmore University.Infrastructure investments have traditionally been financed by governments but competing needs for limited resources has seen an increase in private sector funding of infrastructure projects. Given the large capital requirements needed for infrastructure investments, pooled savings such as those held by pension funds, insurance companies and endowments funds have been identified as potential sources of funding. The unique characteristics of infrastructure assets such as the long term horizon, stable, predictable and inflation linked cash flows match the liability profile of pension funds making them an ideal potential source of funding for infrastructure. In developed and emerging countries, pension funds have invested in infrastructure assets notwithstanding various barriers that exist. This study sought to analyze the factors that would influence investment in infrastructure assets by pension funds in Kenya. The review of theoretical and empirical literature identified nine factors that could influence investments in infrastructure assets. Questionnaires were issued to managers of pension funds in Kenya and 48 responses out of a targeted 66 respondents were received attaining a 73% response rate. The extent of influence of these factors on investment in infrastructure assets by managers of pension funds in Kenya was measured using an ordinal Likert scale and this was corroborated by a question that asked them to rank the relative importance of each of the factors. Factor analysis was then carried out to reduce the factors. The findings showed that the main factors that would influence the investments in infrastructure assets in Kenya were: the structure and investment characteristics of infrastructure assets, the expected return, governance of pension schemes and risk and regulation. Policy makers in Kenya should engage with the pension industry and address the potential impact these factors would have on attracting private capital as they structure infrastructure assets. Further research can be conducted on the feasibility of Public Private Partnerships in Kenya that require user fees on public utilities to be charged in the long term to meet the asset-liability match required by pension funds