British-American Investments Company (BAIC) is set to invite international investors to put their money in a Sh10 billion property fund that will help the firm get a larger share of the region’s real estate market and cut its reliance on the volatile equities market.
The company will put Sh1.5 billion in the fund directly and raise Sh8.5 billion from other investors after getting approval for the fundraising plan from the Capital Markets Authority (CMA) mid-year.
The company’s earnings have been hinged on the performance of the Nairobi Securities Exchange (NSE), a move that has seen it take a hit during bearish runs at the equities markets that culminated in a Sh1.9 billion loss in 2011.
Now, the firm is seeking to reduce the share of its assets under equities and focus on the real estate market where it will invite investors to pool their resources with the promise of offering returns after a specific period of time.
It will also earn returns from its share of the fund as well as a fee for acting as the asset manager.
“We have made regulatory applications for creation of the fund that will allow us source for funds from international investors and high net worth local investors,” said BAIC’ managing director Benson Wairegi.
“To curb the effect of the stock market on our performance… we are focusing on the diversification of our asset portfolio by investing in real estate and reducing the concentration on equities,” said Mr Wairegi.
Property accounts for 10 per cent of BAIC’s assets and the company intends to raise it 30 per cent in a period it did not disclose. Equities accounted for 40 per cent of its assets in December and it’s keen to reduce this portion to 20 per cent.
Under the property fund, investors can exit through selling their shares to third parties who will earn a return from disposal of houses, office blocks, and rental income.
But the exit mode will be made easier by ongoing plans to list property at NSE through Real Estate Investment Trusts (Reits) — which use pooled capital of investors to buy and manage income property as well as allow for trading shares in properties at the exchange.
The rise in home prices and rents has seen property emerge as a prime investment vehicle in step with bonds and equities asset classes.
The sector is riding on nearly three decades of under investment in the mid-tier housing segment.
Fund managers like BAIC are also seeking a piece of the action, hoping that the listing of property at NSE would catapult the use of pooled funds on Kenya’s real estate market.
BAIC is already making big-ticket property investments on its own as it races to grow earnings in this segment.