Rather than respond to each public interest enquiry in social media, we have aggregated the questions we have often received:
Are you a bank? We are not regulated by the Central Bank of Kenya and are not licensed to take deposits from the public. As discussed above, Cytonn CMS is an investment product not a banking product. Our investment solutions are privately offered investments through the private offers regulatory framework
Who regulates CMS? Cytonn CMS is currently a privately offered solution offered exclusively to high net worth individuals and is “self-regulated” through its own governance structure of the board, custodian, auditor and principal partner, Cytonn Investments, that is rated by GCR, a credit rating agency
What happens when there is a default? To evaluate a default, we need to look at the probability of default and the loss given default. The portfolio contains a highly diversified set of investment grade real estate assets that is selling off plan and liquid investments. Additionally, the corporate guarantee empowers investors to recover any amounts due from the promoter, Cytonn Investments Management Plc. A recent example is the minimal investments Cytonn CMS had in Imperial Bank and Nakumatt Commercial Paper; the defaults were taken up by the promoter, Cytonn Investments Management Plc, hence shielding our investors from any losses
How are you able to offer 18% yet banks offering much lower rates? Cytonn CMS rate is priced off the loan price market, not off the money markets. Because the funds are mainly used for real estate development, which is mainly sold off plan, the appropriate benchmark is the cost of loans, and the typical real estate developer accesses bank financing at 14% - 18% annually
How come no one else is offering these rates? Offering higher than average rates requires a comprehensive platform; the Investment Manager has to have the asset yield that can support the return. The Promoter has to have an investment function that interfaces with investors (Cytonn Investments), and yield a generating function that generates the yield (Cytonn Real Estate). Cytonn is the only brand in this market that has coupled up investment management and real estate development onto one platform. A promoter cannot off high returns without a high yielding asset to support the return
Why does by bank or relationship manager talk badly about CMS? First is possible that RMs don’t understand how structured notes work. Secondly, CMS offers a very competitive private alternative to fixed term bank deposits, hence can be construed to be in direct competition. It is not the first time established players have opposed new products. The banking industry was hesitant when M-Pesa was introduced 10-years ago as a new means for money transfer, but today M-Pesa is the leading means to transact cash. Taxi owners and drivers opposed the introduction of Uber, but today Uber is the most used means of cabbing in Nairobi. And established banks ridiculed the transformation of Equity Bank from a building society to a commercial bank, and today it is the largest bank by market capitalization. History is littered with examples of established order talking down innovation and emerging technologies that are perceived as threatening
What is the difference between a deposit offering a rate and an investment offering a rate? Deposit rates are fixed and guaranteed by the bank, which is regulated by the Central Bank of Kenya. The rate a bank can offer is largely determined by the rate at which they can lend the funds and still keep a margin. On the other hand, an investment rate is determined by the profit returns generated by the commercial enterprise in which the funds are invested, such as real estate development
Who does Cytonn CMS target? Cytonn CMS targets high net worth individuals and institutions with the capacity to understand the risks and complexity of the investments. They have to go through a prequalification process and be admitted by an existing Partner into the Partnership. It is privately offered
How come other fund managers at some point stopped issuing CMS? CMS is an unregulated investment solution offered through private channels. Our understanding is that Fund Managers, themselves CMA regulated entities, were issuing CMS in contravention of Section 26 (1) (b) of the Capital Markets Act, which prohibits carrying out “any activity outside the scope of the licensed or approved activities”. The placement has to be structured to conform to the private offers regulations. It is our understanding that other competitors are restructuring their offerings
What is the profile of investors in Cytonn CMS? Cytonn CMS investors include local high net worth individuals, Kenyans and other East Africans in the Diaspora, local institutions such as SACCOs and chamas, as well as international institutional investors. The leading investor is Taaleri, a USD 7 billion investor based in Finland, whose representative also sits on the Board
Is CMS a Ponzi Scheme? A Ponzi scheme involved offering high returns that are not supported by any underlying economic activity or enterprise. Essentially returns are paid out of cash flows from new investors. Any offer of above market returns has to be able to demonstrate the actual assets / underlying economic activity that supports the returns. In the case of Cytonn CMS, the returns are supported by the 10 ongoing and largely pre sold developments
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