A year ago Star Capital completed gaining its licences and opened for business. Of course, the origins of Star Capital date to a few years earlier when three pension professionals – Andrew Slater, Stephen Tennant and Darshan Ruparelia[i] – saw how Kenyan pension scheme members could enhance their pensions. Across the three founders, two of whom are actuaries, there is 100 years of career experience working with pension scheme trustees in Africa and worldwide. We know how we would invest if we were sat on the trustee side of the table, and the design of Star Capital funds reflects this unique blend of investment and pension experience.
From the outset we had a simple message:
- We are different to existing asset managers.
- We bring innovation and specialisation.
- We promote investing internationally.
And we were forthright about why Kenyan pension schemes should invest internationally:
- Offshore provides diversification.
- Offshore provides return.
- Invest offshore to maximum allowed (15% of portfolio is RBA restriction, optimal is 40%+[ii]).
- Invest offshore as soon as possible (as currency will most likely depreciate).
And we were right. The Star Capital fund returned over 48% in shilling over 2023, of which over 2% was outperformance (“alpha”)[iii]. If a hedge fund could offer that return I would without hesitation pay their “2 and 20” to lock in[iv]!
We were forthright and vocal in our views because we were confident in our analysis, formed by an investment team which is dozen strong, only focused on international investments, and with members whose experience goes back to the 1970s. The ending of quantitative easing was always going to inflationary and too few investors have such firsthand experience. Now is not the time to be a passive investor. The status quo is not an option, unless poor returns are what you seek.
Investing internationally is not like picking a stock on the Nairobi Stock Exchange[v], rather it is a process. Kenya represents just 0.2% of global GDP. Therefore, investing offshore is not an adjunct to a local portfolio, it is a core component of strategic asset allocation. To invest in the 99.8% you need specialists who can research the global economy, perform the detailed quantitative analysis for portfolio construction and risk management to give the confidence to make investment decisions with conviction.
Kenyan pension schemes have invested offshore before but mistakes were made, replacing Kenyan concentration with offshore concentration. The Star Capital fund corrects these mistakes and has been successfully providing international exposure to South African pension schemes for the last five years. The South African regular allows 45% offshore[vi] and pension schemes utilise the limit to the full.
Pension scheme members will have felt the impact of shilling depreciation and pose what will most likely be uncomfortable questions to the timidity towards offshore investing. Avoiding such questions is priceless.
Right now, there are only three investment decisions for trustees to make:
(1) how much offshore, (2) when offshore and (3) how offshore.
And the answers are easy: 15%, immediately, and with Star Capital[vii].
Andrew Slater FIA CFA
CIO Star Capital
30 January 2024
For more information on how Star Capital can give multi-asset international exposure, boost return and reduce portfolio risk please contact me at andrew.slater@starcapmgt.com or CEO Darshan Ruparelia at darshan.ruparelia@starcapmgt.com
[i] Slater, Tennant and Ruparelia gives Star Capital its name!
[ii] Sources: https://www.rba.go.ke/investment-regulations-policies/ and author’s analysis, available on request
[iii] A Kenyan pension scheme which invested in the Star Capital fund on 1 January 2023 would have a 48.68% return in shilling (versus a benchmark return of 46.48%) at 31 December 2023. Source: Star Capital Global Balanced Flexible Fund factsheet December 2023
[iv] “2 and 20” refers to the orthodox fee structure used by hedge funds, 2% annual management charge and 20% of outperformance.
[v] The NSE was the worst performer worldwide over 2023 with an annual return of -32%, see https://www.bnnbloomberg.ca/kenya-s-stock-market-becomes-world-s-worst-performer-1.1979077
[vi] Source: https://www.bloomberg.com/news/articles/2022-03-11/south-african-investors-face-quandary-over-offshore-exposure
[vii] For those who know their 1980s pop music, Cher couldn’t reach for the stars, but Kenyan pension schemes can!
