The Capital Markets Authority (CMA) of Kenya has taken a significant step towards bolstering investor protection and fostering economic growth through the introduction of regulations for Alternative Investment Funds (AIFs).

Geared towards high-net-worth individuals and institutions, AIFs pool capital from a minimum of two and a maximum of one hundred investors, each committing a minimum investment of Sh1 million.

These funds invest in diverse assets such as debt, equity, real estate, infrastructure, and commodities, offering investors portfolio diversification and a hedge against inflation.

Wyckliffe Shamiah, Chief Executive Officer of the CMA, highlighted the core objectives of the Capital Markets (Alternative Investment Funds) Regulations 2023.

"The regulations broadly cover several areas including requirements for approval of the funds; investment conditions and restrictions; obligations and responsibilities transparency, inspections; and procedures for action in case of default," he explained.

This regulatory framework ensures a high level of governance within AIFs.

Public solicitation for subscriptions is prohibited, and the funds must demonstrate strong governance structures with qualified directors, trustees, or partners, and experienced investment teams.

Following approval, AIFs are required to disclose clear details on their investment goals, target investor base, asset composition, and lifespan.

Notably, entities like family trusts and employee participation schemes are exempt from AIF classification.

The introduction of AIF regulations marks a pivotal moment for Kenya's capital markets.

This initiative paves the way for the development of a robust AIF industry.

The regulations facilitate innovative structures for alternative investments, enabling the financing of crucial projects in property development and infrastructure.

Previously, these funds operated outside the CMA's purview.

The new regulations bring them within the regulatory fold, mitigating risks associated with retail investor participation in complex financial instruments.

The move towards AIF regulation coincides with a period of positive performance in Kenya's domestic capital market, as highlighted in the CMA's Quarter One 2024 Capital Markets Soundness Report.

The report indicates improved performance across equities, turnover, share volume, NSE indices, and market capitalization.

Notably, investor net-worth has increased by Sh370 billion, largely driven by the strengthening of the Kenyan shilling against the US dollar.

Market stability is further reflected in low share price volatility for companies listed on the Nairobi Securities Exchange (NSE), along with improved liquidity and a significant rise in foreign investor participation in equity trading, reaching 60 per cent market share.

However, the report also acknowledges a net foreign equity outflow of Sh2.20 billion during the quarter, indicating some ongoing foreign investor disengagement.

Despite this, the recent attraction of global institutional investors like Blackrock to the NSE, fueled by market recovery and positive developments in Kenya's foreign exchange market, paints an optimistic picture for the next quarter.

The CMA's proactive approach to regulation, coupled with positive market trends, suggests a promising future for Kenya's capital markets.