Kenya’s capital markets regulator has rolled out a new framework to regulate alternative investment funds, a move aimed at bolstering investor protection and fostering the growth of this high-risk, high-return asset class.
The Capital Markets (Alternative Investment Funds) Regulation 2023 brings previously unregulated pooled investment vehicles under the regulator’s oversight. These alternative investment funds (AIFs) allow institutional and high-net-worth investors to access diverse asset classes, including debt, equities, hedge funds, property, and infrastructure.
“The Regulations provide for regulation of the private pooling of funds from domestic and foreign investors,” CMA Chief Executive Officer Wyckliffe Shamiah said in a statement. “They cover areas such as approval requirements, investment conditions, transparency obligations, and procedures for default.”
Under the new rules, AIFs can pool capital from at least two but no more than 100 investors, each contributing a minimum of KES 1 million. Public solicitation is barred to protect retail investors from complex fund structures.
Shamiah touted AIFs’ role in portfolio diversification, economic development funding, and inflation hedging. Markets like India, South Africa, Nigeria, and Egypt already have established AIF industries.
The regulations usher in an initial phase for Kenya’s alternative investment landscape, allowing structural innovations to finance property and infrastructure projects. However, the CMA plans stakeholder engagement to build capacity in this nascent market segment.
In its quarterly soundness report, the regulator highlighted Kenya’s capital markets’ resilience amid global economic challenges. Equity turnover, trading volumes, indices, and market capitalization all improved, driving a KES 370 billion increase in investor net worth.
While foreign investors continued net selling of KES 2.2 billion in Kenyan stocks, global funds like BlackRock have recently increased their participation, buoyed by the market’s recovery and forex gains. Low volatility, improved liquidity, and 60% foreign trading share underscored the bourse’s health.
The CMA’s dual initiatives – regulating alternative investments and maintaining market integrity – aim to enhance Kenya’s capital markets’ depth, stability and investor appeal.
