Due diligence required when choosing a fund manager in Kenya

To save or not to save has never been the question but rather where and with whom to do it. PHOTO | SHUTTERSTOCK

To save or not to save has never been the question but rather where and with whom to do it.

The growth in savings products in Kenya over the past decade reflects a shift towards greater personal responsibility in securing long-term financial well-being. More Kenyans are becoming proactive in achieving their financial goals.

Retail investors who have saved in collective investment schemes have seen a significant increase, with the number of retail investors holding such holdings increasing to 257,166 as of September 2022, a more than three-fold increase from 84,050 a decade before.

Last year alone investors shrugged off the remnants of Covid-19 and runaway inflation to grow assets under management to Sh155.9 billion from Sh126 billion, a 24 percent increase.

Even with this growth the scope for growth and good opportunities for investors is enormous.

As such, the question is not whether to save but where and with whom.

This question is becoming even more relevant due to the proliferation of cases where investors, mostly retail, lose money in poorly executed investments and in worse cases, fraudulent ones.

There are several steps individuals can take to safeguard their investments even if knowledge of finance is basic.

One of the first steps that an investor should take before committing funds is to look at the people who will be handling your money.

It sounds obvious but it is not. We do thorough due diligence when hiring, choosing a doctor, a hospital, a school etc. and the same care should be taken when selecting who will handle your savings.

To this end, an investor should look at the fund managers: their background, experience and reputation.

On reputation, due diligence can be done by looking at the management’s history of compliance with regulatory bodies and reputation among peers.

Today regulators including the Capital Markets Authority, the Insurance Regulatory Authority and the Retirements Benefits Authority publish annual reports on companies that have breached regulation and the corrective actions taken.

If your potential fund manager is a serial entry into the regulators’ list of shame, this is a red flag.

Secondly, choose a firm with a clear investment strategy to ensure the safety of your money. Losses can occur when fund managers invest in high-risk securities, poorly thought-out investment strategies or placement of deposits in unsound financial institutions and banks.

Also, check the fund's investment holdings for diversity and transparency. A mix of low-risk and high-yield securities is ideal, with access to information on the holdings and performance.

A larger fund size is a sign of stability, diversification, track record and better ability to handle economic shocks, and it may also provide greater liquidity for withdrawals.

High returns are good but it’s advisable to ensure that these returns have not sacrificed the safety of your funds.

And, never shy away from asking the potential fund manager to give a thorough breakdown of all fees.

Obatsa is the CEO of Britam Asset Managers.