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Recent Topicals

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Review of Kenya’s debt sustainability in the wake of the 2015/2016 budget

Jul 4, 2017

The Kenyan economy has done really well over the last few years, and according to the government the picture is even rosier as they project the GDP to grow at 6.9% in this financial year, despite the insecurity challenges facing the country. On the back of this accelerated projected growth rate, the cabinet approved the 2015/2016 budget that will be read in parliament, and passed, in the month of June. Of key note is that the total government expenditure has continued to grow, almost doubling over the last five years. However, revenue growth has not kept pace, growing at 59% over the same period. The only mitigation to expenditure growth far outpacing revenue growth is that a majority of expenditure is allocated towards development, which has more than doubled, while the recurrent expenditure has grown by 15% over the same period. The faster growth in government expenses compared to revenue has led to an increase in total government deb...

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Alternative Investments in Kenya

Jul 4, 2017

Investors typically invest in well-known and liquid asset classes such as money markets, equities and fixed income, collectively referred to as “traditional investments” or “public markets”. As an “alternative” to these traditional investments, there are other investments referred to as “alternative investments” such as private equity, real estate and structured products. While relatively illiquid and more complex, alternative investments offer higher and more stable returns over the long-term. Investor’s focus is gradually shifting towards alternative investments, due to increased investor education and global capital searching for lucrative returns available in the region. Demographic trends, including a young population and a growing middle class, alongside rapid urbanization and government’s sluggish pace in the provision of essential services, has created an opportunity for private capital to drive growth. When analysing returns over the last 5 years, across var...

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Structured Products

Jul 4, 2017

In last week’s report, we showcased alternative investments as an attractive asset class. Alternative investments can be classified as investments in real estate, private equity and structured products. While relatively illiquid and more complex than traditional investments (fixed income and equities), alternative investments offer higher and more stable returns over the long-term as illustrated in our last week’s report.Alternative investments are also referred to as private investments because you cannot access them from the public markets. For example, public / traditional investments are reported on daily in the press. And some like unit trusts are even required by regulation to report their pricing on a daily basis. On the other hand, alternative / private investments can only be accessed by invitation or by inquiry.Having discussed alternative investments last week, we will now delve deeper into each type of alternative investment, starting with st...

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Real Estate Investments

Jul 4, 2017

In our Cytonn Weekly report #18, we spoke about how investors typically invest in well-known and liquid asset classes such as money markets, equities and fixed income, collectively referred to as “traditional investments” or “public markets”. There exists an alternative to these traditional investments in private equity, real estate and structured products. Last week, in our Cytonn Weekly report #19, we demystified structured products, and this week we explain real estate investments. While relatively illiquid and more complex, alternative investments are essential to an investment portfolio for 2 reasons: First, they offer higher returns. Second, the returns are more stable and uncorrelated to more volatile returns such as equities. For example locally, real estate has registered the highest returns over the last 5 years, at 24% p.a., as compared to traditional markets, as can be seen in the graph below.

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Real Estate Investments

Jul 4, 2017

In our Cytonn Weekly report #18, we spoke about how investors typically invest in well-known and liquid asset classes such as money markets, equities and fixed income, collectively referred to as “traditional investments” or “public markets”. There exists an alternative to these traditional investments in private equity, real estate and structured products. Last week, in our Cytonn Weekly report #19, we demystified structured products, and this week we explain real estate investments. While relatively illiquid and more complex, alternative investments are essential to an investment portfolio for 2 reasons: First, they offer higher returns. Second, the returns are more stable and uncorrelated to more volatile returns such as equities. For example locally, real estate has registered the highest returns over the last 5 years, at 24% p.a., as compared to traditional markets, as can be seen in the graph below.

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