Collective Investment Schemes in Kenya: How Unit Trusts, the CMA and the 2023 Regulations Protect the Ordinary Kenyan Saver

Collective investment schemes in Kenya let ordinary savers pool their money into professionally managed unit trusts, special funds and other vehicles regulated by the Capital Markets Authority. This article, the second in a three-part series, explains exactly who may lawfully operate a collective investment scheme in Kenya, how a unit trust is built, what kinds of fund exist, how large the market has become, and how to tell a regulated fund from an imitation.

Series note: This is the second article in a three-part series on investment funds. Article 1 traced the idea of the pooled fund from Amsterdam in 1774 to the present day. This article explains the Kenyan law behind collective investment schemes. Article 3 will examine Special Funds in depth.

From Amsterdam 1774 to collective investment schemes in Kenya today

In the first article we followed a single idea across two and a half centuries. It began in 1774 when a Dutch broker named Abraham van Ketwich invited ordinary people to pool their money in a fund he called Eendragt Maakt Magt, meaning unity creates strength. It travelled through Britain’s Foreign & Colonial Government Trust of 1868, the Massachusetts Investors Trust of 1924, the first British unit trust launched by M&G in 1931, the American Investment Company Act of 1940 and the modern European UCITS framework. We ended with two warnings from history, the Reserve Primary Fund that broke the buck in 2008 and the Woodford suspension of 2019.

Van Ketwich’s genius was not only the pooling but also the safeguard. He kept the fund’s securities in an iron chest secured by three differently working locks, so that no single person could open it alone. That old chest is the ancestor of the modern structure behind every collective investment scheme in Kenya. Follow the idea from Amsterdam to Nairobi and you find the same chest rebuilt as a triangle of three separate parties, the fund manager, the trustee and the custodian, each holding a different key, with the whole arrangement governed by the Capital Markets Act and a set of regulations made in 2023. This article answers the four questions the first article left open.

Who may lawfully run a collective investment scheme in Kenya

The starting point is the Capital Markets Act, Chapter 485A of the Laws of Kenya. It received presidential assent on 13 December 1989 and came into force on 15 December 1989, and the Capital Markets Authority it creates was inaugurated on 7 March 1990 as the regulator responsible for promoting, regulating and facilitating an orderly, fair and efficient capital market. The Authority itself is established by section 5 of the Act. Pooling money from the public to invest it on their behalf is not something anyone in Kenya may simply set up and do. It is a licensed activity, and doing it without a licence is a criminal offence.

The detailed rules now live in the Capital Markets (Collective Investment Schemes) Regulations, 2023, made as Legal Notice No. 173 of 2023, which commenced on 27 October 2023 and appeared in the Kenya Gazette of 15 December 2023. These 2023 Regulations repealed the Capital Markets (Collective Investment Schemes) Regulations of 2001 and modernised the entire framework for collective investment schemes in Kenya. Regulation 4 is the gatekeeper. It provides that a person shall not establish or operate a collective investment scheme unless the scheme is approved and that person is licensed by the Authority as a fund manager or an investment bank, shall not operate an intermediary service platform without a licence, shall not advertise a scheme in Kenya unless the person is licensed and the contents of the advertisement have been approved by the trustee of the scheme, and shall not advise or procure any person to become a participant in a scheme unless the scheme is an approved scheme.

Regulation 4(2) then supplies the consequence. A person who contravenes the regulation commits an offence and is liable on conviction to the penalty specified under section 34A of the Act, together with general damages where applicable for any loss occasioned. Section 34A caps those financial penalties at KES 10 million for an institution and KES 5 million for a natural person. Reinforcing this, regulation 20 states plainly that a collective investment scheme shall not pool funds from the public or a section of the public unless it has been approved by the Authority. The logic of the law is therefore simple and strict. Approval attaches to the scheme, a licence attaches to the operator, and marketing to the public without both is unlawful.

The 2023 Regulations widened the legal forms a collective investment scheme may take in Kenya. Under Part II a scheme may now be established as a unit trust created by a trust deed under regulation 6, as an investment company created by articles of association under regulation 5, or as a partnership under regulation 7, which may only take the form of a limited liability partnership. A closed end fund whose interests are offered to the public must be listed on a securities exchange, as regulation 3(2) requires. The unit trust remains the workhorse of the Kenyan market and it is the form most ordinary savers will meet.

A companion set of rules was made at the same time for private funds, the Capital Markets (Alternative Investment Funds) Regulations, 2023, Legal Notice No. 170 of 2023. The distinction matters. A collective investment scheme under Legal Notice 173 is a public product, open to members of the public and marketed by advertisement. An alternative investment fund under Legal Notice 170 is a private vehicle that pools funds from at least two but not more than one hundred investors, may not accept from a participant an initial investment of less than KES 1 million, and may not solicit or collect funds except by way of private placement. In plain terms, the public retail world and the private high value world are governed by two different sets of rules, and the safeguards that protect an ordinary saver in a unit trust do not all apply in the private world.

The three keys being the fund manager, the trustee, and the custodian

The heart of the Kenyan structure is the separation of powers among three independent parties. This is van Ketwich’s three locked chests rebuilt in statute, and it is the single most important protection an ordinary investor has in any collective investment scheme in Kenya.

The fund manager is the party that runs the money. Under regulation 49 a scheme must have a fund manager responsible for its management and administration, and regulation 50 provides that no person may perform the functions of a fund manager without a licence issued by the Authority. Crucially, regulation 49(3) provides that the fund manager shall not be related to the trustee or the custodian, and regulation 12(1)(a)(i) requires the fund manager to be independent of both.

Regulation 51 sets the standard of conduct. The fund manager shall administer the scheme honestly and fairly, shall act in the best interests of participants and, where its own interests conflict with theirs, shall give priority to the participants, shall act with skill, care and due diligence, and shall be guided by the Stewardship Code for Institutional Investors, 2017, issued by the Authority. Regulation 12(1)(g) requires the price at which units are sold or redeemed to be calculated based on net asset value, and regulation 52 lists the fund manager’s detailed functions, including publishing prices in a widely accessible medium and, under regulation 52(5), stating each participant at least once a month showing the interests held and the transactions of the preceding month.

The trustee is the party that holds the assets and watches the manager. Under regulation 31 no person may be appointed trustee unless licensed by the Authority, and regulation 32 sets the eligibility bar, including paid up capital of at least KES 10 million and minimum liquid capital of KES 5 million or 8% of liabilities. In the case of a unit trust the trustee holds the title to the scheme’s assets, as regulation 38 provides, which means the money and securities do not belong to the fund manager and are not exposed to the fund manager’s creditors.

Regulation 36 defines the trustee’s oversight duty. The trustee must take reasonable care to ensure the scheme is managed in accordance with the scheme documents and the Regulations, must ensure the manager’s investment decisions do not exceed its powers, must notify the fund manager of any irregularity or undesirable practice and, where the fund manager takes no action, report it to the Authority, and must treat the interests of participants as paramount. Regulation 42 requires the trustee to report the compliance status of the scheme to the Authority within twenty-one days after the end of each quarter, and regulation 44 forbids the trustee from delegating to the fund manager any function of oversight of the fund manager, which closes the obvious loophole of the watched appointing the watcher.

The custodian is the party that keeps the assets safe. Under regulation 64 every scheme must appoint a custodian licensed by the Authority for safekeeping of the scheme property, and regulation 65 requires the custodian to be a bank licensed under the Banking Act or another financial institution that demonstrates capacity and expertise in custodial business, with paid up capital of at least KES 50 million and minimum liquid capital of KES 25 million or 8% of liabilities.

The custodian holds the assets in segregated accounts, and regulation 41 prohibits the trustee or custodian from reusing the assets in their custody for their own account except in the narrow circumstances the regulation allows, which must benefit the scheme and be covered by high quality liquid collateral. The trustee and the custodian may be the same entity, but only under regulation 12(3), which permits this where the entity demonstrates to the Authority that conflicts of interest are well mitigated.

The protective logic runs through all of this. The assets never sit in the fund manager’s hands. Title rests with the trustee, safekeeping rests with the custodian, management authority rests with the manager, and the three must be independent. This is the direct descendant of the custody rules of the American 1940 Act and of van Ketwich’s chest. The 2023 Regulations reinforce it with regulation 28, which makes void any provision in the scheme documents that would exempt the fund manager, trustee or custodian from liability for a failure to exercise due care and diligence, so the parties cannot contract their way out of the duty of care.

The 2023 Regulations also brought the digital age inside the perimeter. The apps and websites through which Kenyans now buy units on their phones are intermediary service platforms, and regulations 76 to 84 require their operators to be licensed. Regulation 83 prohibits a platform provider from holding clients’ funds, from offering investment advice in any form, and from sharing clients’ data with third parties who are not affiliated. The Regulations also introduced the key investor information document under regulation 22, a short plain document approved by the trustee, filed with the Authority and kept up to date on the fund manager’s website, and they provided for umbrella funds and sub funds. Valuation must be at fair value and units must be priced on the basis of net asset value.

The law has not stood still since. In December 2025 the licensing side of this architecture was overhauled by the Capital Markets (Licensing Requirements) (General) Regulations, 2025, Legal Notice No. 197 of 2025, which came into force on 11 December 2025 and replaced a licensing regime that had stood since 2002. The new regulations now govern how fund managers, trustees, custodians and intermediary service platform providers are licensed. They revise minimum capital requirements, requiring a fund manager to maintain shareholders’ funds, meaning paid up capital and reserves, of at least KES 20 million at all times, and they give existing licensees twelve months, to 11 December 2026, to comply. Some of their capital thresholds, including those for trustees and custodians, sit above the figures in the 2023 Regulations set out earlier, and the market is awaiting the Authority’s clarification on how the two sets of rules interact. Until that clarification comes, the prudent course for operators and their advisers is to read the two side by side and comply with the stricter requirement.

The kinds of collective investment scheme in Kenya, and the size of the market

The 2023 Regulations set out the permitted fund families and the composition rules for each in regulation 102. A money market fund invests only in interest earning money market instruments with a maximum weighted average tenor of 18 months, so its universe is short term and conservative, meaning government securities, call deposits, fixed deposits with banks and deposit taking institutions, and credit rated or guaranteed commercial paper. An equity fund must hold at least 60% of its market value in equities, whether listed or unlisted. A fixed income fund must hold at least 60% in fixed income securities at all times. A balanced fund invests across money market, equity and fixed income instruments, with each of the three classes capped at 60% of assets under management so that no single class dominates.

A special fund is different in kind. It is built around the fund manager’s own investment strategy as set out in its investment policy statement, it is approved by the Authority on a case-by-case basis, and it is the only category of public fund permitted to use leverage, within a disclosed ratio and disclosed stop loss measures. The ordinary funds, meaning money market, equity, fixed income and balanced funds, may not be leveraged at all. The special fund also carries a minimum investment of KES 100,000 per investor. It is important not to confuse this with the private world. The KES 100,000 minimum belongs to the special fund category under the 2023 Collective Investment Schemes Regulations. The KES 1 million minimum is a different rule that belongs to the separate Alternative Investment Funds Regulations, and the two should never be conflated.

Beyond these core categories the Kenyan market has other regulated fund families. Real estate investment trusts are governed by the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013 and come in two forms, the income real estate investment trust and the development real estate investment trust. An income REIT offered to the public without restriction must be closed ended and listed, while a development REIT or a restricted income REIT may be structured as open ended or closed ended. Exchange traded funds trade on the Nairobi Securities Exchange, where the sole listing is the NewGold exchange traded fund sponsored by Absa, cross listed from Johannesburg under the ticker GLD. Employee share ownership plans and, in the private world, alternative investment funds such as private equity and venture capital vehicles complete the picture.

The market these rules govern has grown from a curiosity into a mass savings movement. Assets under management stood at KES 56.6 billion in March 2018. By the quarter ended 31 March 2026, the Authority’s Collective Investment Schemes Quarterly Report recorded total assets under management of KES 851.7 billion, up from KES 756.3 billion in December 2025. That was a quarterly gain of KES 95.4 billion, or 12.6 per cent, and on my reading of the Authority’s reports the third largest quarterly increase on record, behind the KES 107 billion added in the first quarter of 2025 and the KES 100.1 billion added in the quarter after it. It represented year-on-year growth of about 71.6 per cent.

At that date there were 62 approved collective investment schemes in Kenya comprising 285 funds, of which 43 schemes were active. Investor accounts reached a record 3.63 million as at 31 March 2026, having grown from 1,409,343 in December 2024 to 3,224,130 by December 2025. Money market funds held KES 442.2 billion, about 51.9 per cent of the market, a share that has fallen steadily from about ninety per cent at the end of 2021, through about 59 per cent in September 2025, as savers move into fixed income and special funds. Special funds rose from about five per cent of the market at the end of 2021 to 23.9 per cent by March 2026, about KES 203.6 billion.

The two largest schemes were the Sanlam Unit Trust Scheme at 18.9 per cent of all assets and the Standard Investment Trust Fund at 18 per cent, the latter driven by the Mansa-X Special Fund, and these were the only two schemes with assets above one billion United States dollars, holding KES 314.2 billion or 36.9 per cent of the total between them. CIC, Britam and NCBA followed. A striking feature of the Kenyan market is how conservative it remains. As at 31 March 2026 government securities, fixed deposits and cash together accounted for about 81.6 per cent of all scheme assets, and the first quarter 2025 report had recorded that roughly 46 per cent of assets sat in government securities.

A collective investment scheme registered with the Commissioner is exempt from income tax at the level of the fund under section 20 of the Income Tax Act, so the pooled money is not taxed twice. Registration comes with conditions set in rules made in 2003, including that the scheme exists solely to invest on behalf of its holders, that no holder owns more than 12.5 per cent after the first six months, and that the scheme maintains at least 25 holders. The investor bears withholding tax of fifteen per cent on interest distributions, and for a resident individual that withholding is final. Neither the Finance Act, 2025 nor the Finance Act, 2026 disturbed this position.

Telling a regulated collective investment scheme in Kenya from an imitation, the Cytonn lesson

The most important question for an ordinary saver is also the hardest, because the danger is not usually a fund that looks obviously fraudulent. The danger is a product that wears the clothes of a regulated fund without being one. Kenya has a clear and painful case study, and it is worth telling precisely, as a lawyer would, because the lesson is legal rather than moral.

Cytonn Asset Management Limited, a fund manager licensed by the Capital Markets Authority, operated approved, regulated products, among them the Cytonn Money Market Fund, the Cytonn Balanced Fund, the Cytonn Equity Fund and the Cytonn High Yield Fund. That much was inside the regulatory perimeter. But the group’s flagship high yield offerings, the Cytonn High Yield Solutions and the Cytonn Real Estate Project Notes, were not approved collective investment schemes at all. They were unregulated private products that channelled money into real estate projects controlled by the group, and Cytonn itself described the High Yield Solutions as a private offer structured outside the collective investment scheme framework.

On 17 June 2021 the Authority issued a public statement confirming that Cytonn Investments was not a licensed and approved entity, cautioning that investors who put money into unregulated products offered or promoted by unlicensed and unapproved entities risk loss of their investments with no recourse under the capital markets regulatory framework, and stating that the Capital Markets Fraud Investigation Unit, the police unit attached to the Authority, was investigating for criminal violations. The Authority was careful to note in the same statement that Cytonn Asset Management Limited did hold a licence and did operate genuinely regulated funds. The two worlds ran side by side under one brand.

The scale of the loss was very large and court records are precise. The High Yield Solutions took in about KES 11.17 billion from 3,116 investors and the Project Notes a further KES 4.18 billion from 886 more, over KES 15 billion in all. The unregulated vehicles were placed under administration in 2021, and on 6 January 2023 the High Court, through Justice Alfred Mabeya, terminated the administration, ordered their liquidation and appointed the Official Receiver as liquidator.

On 21 November 2025 the Court of Appeal, sitting as a bench of Justices Patrick Kiage, Jamila Mohammed and George Odunga, delivered a series of judgments dismissing the appeals brought by Cytonn related entities against the High Court’s orders. In Cytonn Investments Partners Sixteen LLP & 3 others v Official Receiver [2025] KECA 1934 (KLR), which disposed of four consolidated appeals, the court held that the web of special purpose vehicles built by the promoters could not shield assets bought with investor money, that those vehicles were not genuinely independent of Cytonn Investment Management PLC and its promoter, that under the doctrine of tracing the investors’ money could be followed into the properties it had bought, and that the vesting of the disputed properties in the Official Receiver for the benefit of investors would stand.

Companion judgments delivered the same day, including Cytonn High Yield Solutions (CHYS) (In Liquidation) & 2 others v Official Receiver & 17 others [2025] KECA 1951 (KLR), upheld the conversion of the administration into liquidation. The story has not ended. The Official Receiver began selling Cytonn properties in March 2026, the High Court suspended some of the auctions in May 2026, and on 3 July 2026 the Supreme Court issued conservatory orders halting enforcement of the vesting orders over seven projects pending a full appeal. As at the date of this article the substantive appeal is still before the Supreme Court, so the recovery process remains unresolved and no investor has yet been made whole.

The legal point that makes this a teaching case is the near identical naming. The regulated Cytonn High Yield Fund, a unit trust product inside the perimeter, sat beside the unregulated Cytonn High Yield Solutions outside it. The difference between the two names was, in substance, a single word. An ordinary investor reading an advertisement that truthfully said the manager was licensed by the Authority could not easily tell which product was actually approved. This is the crux of the matter. A licence attaches to the operator and approval attaches to the specific product, not to the brand as a whole. A regulated manager can lawfully sell unregulated products to eligible private investors, and the Authority’s protection extends only to what it has actually approved. This is exactly why regulation 13 now insists that a scheme’s name must not be undesirable or misleading, that the name must include the generic name of the fund type, and that a special fund must include the word special in its name and describe the characteristics of its assets.

So how does an ordinary Kenyan saver verify a collective investment scheme in Kenya, stated as law rather than as tips?

First, check the specific fund, by its exact name, against the Authority’s published list of approved collective investment schemes and its register of licensees, which the Authority maintains and publishes. It is not enough that the company’s name is familiar or that the company holds some licence, because the question is whether this particular scheme is approved.

Second, confirm that the scheme has a named trustee and a named custodian and that they are identified in the information memorandum, because the three key structure is mandatory and a product without a trustee and custodian is not a unit trust at all.

Third, ask for the key investor information document that regulation 22 requires every scheme to maintain.

Fourth, remember that under regulation 4 only a licensed person may even advertise a scheme, and only after the trustee has approved the advertisement, so an aggressive promoter who cannot point to approval is already outside the law.

Fifth, treat a promise of guaranteed high returns as the signature of a product outside the regulatory perimeter, because a genuine collective investment scheme prices at net asset value, its value rises and falls, and there are no guaranteed returns in a lawful scheme.

The questions Article 3 will answer

This article has set out the architecture behind every collective investment scheme in Kenya. The third and final article in the series will go inside the most powerful and least understood corner of it, the Special Fund. It will answer five questions. What may a Special Fund actually invest in, and how far do its broader powers extend. Why is leverage permitted in a Special Fund and nowhere else in the retail fund world, and what do disclosed leverage limits and stop loss measures really mean. What does the KES 100,000 minimum investment signify, and whom is it meant to keep out. What does liquidity risk look like in a Kenyan Special Fund, where the assets can be far harder to sell than the units that represent them. And what lessons does the 2019 Woodford suspension in Britain hold for the design and supervision of Kenyan Special Funds.

To follow the series as each part is published, visit the firm’s insights page at www.pmlaw.co.ke/insights, or read Article 1 on the history of investment funds and unit trusts.

Peter Maina is one of the leading capital markets lawyers in Kenya. He has advised fund managers, trustees, custodians and investors on the setting up, licensing and governance of fund managers, the approval and structuring of collective investment schemes and special funds, and regulatory engagement with the Capital Markets Authority.

This article states the position as at August 2026. It is for information purposes only and is not a legal opinion; talk to a lawyer for that. Should you need assistance or advice relating to capital markets, collective investment schemes and special funds or any related matters, reach out via e-mail or WhatsApp on +254 714 644 080.