Cytonn Investments vs Kenya: A Slugfest With No Timeouts & No Winner

One repeatedly narrated (but unconfirmed) account of how one of Kenya’s most visible investments management firms, Cytonn Investments Management PLC, came to exist can be summed up as follows;

Four senior managers at the publicly-listed British-American investments company, Britam, left the company under a cloud. Soon after, these individuals (including Edwin Dande and Elizabeth Nkukuu) set up their own shop in Kenya – a private equity firm which is now known as Cytonn, kicking off in 2014.

Whether they left Britam under acrimonious circumstances or not, it does seem like a dark cloud is, at the moment, hovering over Cytonn; a company Dande now heads as CEO.

The issue? Actually, there’s plenty. Most recently, Kenya’s financial markets regulator, the Capital Markets Authority (CMA), revealed, through its Chief Executive Wyckliffe Shamiah, that “Cytonn Investments is not a licensed and approved entity.”

That’s just the latest in a series of blows that Cytonn received in the last 10 or so months, and the most recent pronouncement by the CMA came on the back of a recent video making the rounds on social media showing a distressed investor lamenting the non-payment of monies due next month.

The investor under the Twitter username, Lynn Ngugi, slammed Cytonn for asking her to extend the maturity of her investments by a further year even after taking an initial one year moratorium, or convert her investment into real estate by taking up property in Cytonn.

Prior to that, there had been similar complaints from investors after the moratorium on payments was effected by Cytonn early last year, and Cytonn had been at the centre of a number of court cases involving both aggrieved investors and the CMA since August 2020.

Sounds like a lot of trouble for one company that just can’t seem to catch a break at this time? Probably. But there’s more to it than meets the eye.

Cytonn has been operating in Kenya since 2014, positioning itself as a sort of alternative investment platform for global institutional investors, individual high net-worth investors, retail investors, local institutional investors, and diaspora investors interested in the East-African region.

Cytonn’s holdings cut across real estate, banking, insurance, education, and hospitality. In September 2016, CMA granted a fund managers license to Cytonn Asset Managers Limited (CAML), now it’s regulated affiliate. And the company also holds a Pensions Management License which it obtained from the Retirement Benefits Authority in 2018.

Over the years, Cytonn has grown to seven subsidiaries, among which are Cytonn Investments, Cytonn Real Estate, Cytonn Education Services, Cytonn Center of Affordable Housing, Cytonn Hospitality Cytonn Foundation and Cytonn Asset Managers Limited (CAML). Currently, the company claims some 30,000+ investors and billions of shillings in assets under management.

To broadly classify its investments, Cytonn is known to have interests in real estate and private equity. Its real estate investments through Cytonn Real Estate, reportedly has over KES 82 Bn (USD 820 Mn) in  ten projects, including The Alma, Taraji Heights, Project Westlands, Applewood, and several others.

All these point to a functional company with a recognisable footprint in Kenya. So why does it seem like it is getting attacked from all corners, most recently by the regulator?

Curiously, in the press release put out by the CMA in which it was stated that Cytonn Investment is not a licensed and approved entity, it was clarified that the CMA had indeed licensed Cytonn Asset Management Limited, which is licensed as a fund manager managing a collection of six regulated funds, of which there have been no complaints, per the CMA.

As it turned out, the announcement from the CMA, dated June 17, was actually an attempt to distance itself from a specific investment instrument known as Cytonn High-Yield Solutions (CHYS); a real estate fund which Cytonn claims it has operated for over 8 years.

That CHYS investment instrument and another product known as Cytonn Project Notes (CPN; debt security raised from investors), happen to be the bones of contention. 

Last September, thirteen investors filed complaints with the Capital Market Authority (CMA) against Cytonn for failure to pay KES 122.8 Mn (USD 1.1 Mn) upon maturity of funds in the CHYS pool.

The investors claimed Cytonn had delayed payments of between KES 500 K (USD 4.6 K) and KES 25 Mn (USD 231.9 K), prompting the CMA to petition the courts in the push to bar Cytonn from putting more cash in real estate projects. Specifically, the CMA said it was concerned that the CHYS and CPN products posed huge risks to the investing public.

Similarly, in December 2020, a Kenyan businessman, George Kirigi Thogo, who had invested over KES 12 Mn in the CHYS fund, moved to court seeking liquidation of Cytonn over failure to pay KES 14 Mn (USD 111.3 K) upon maturity of funds.

Prior to that, Cytonn Investments had been accused of obtaining money from investors without the necessary approvals from the capital markets regulator after claiming the money was being raised privately so as to avoid scrutiny.

In a nutshell, Cytonn offers a range of investment products among which is CHYS which gives yields of up to 18 percent per annum. But the CHYS fund is tied to real estate, and due to market disruptions over the course of the previous year, Cytonn has been unable to meet up. That’s why investors like Ngugi are frustrated.

Cytonn maintains the issues that the CHYS product is facing is not unique to them and is quite common across the globe at this time. “Like other real estate funds globally, the real estate fund has had liquidity challenges given that real estate is a long-term asset and in this case is financed by short-term obligations,” the company said in a statement.

“CHYS is invested in 10 well researched real estate projects, hence the investments are very safe but illiquid. The respective contracts do not allow withdrawals in periods of illiquidity,” the company mentioned in a post on its website.

In an interview, Cytonn’s CEO, Dande, did mention that the pandemic has been a huge problem dragging down the real estate sector, hence the difficulties in meeting up with payment commitments.

Dande also claims only a handful of its 30,000 clients have been affected by the CHYS issues and that the company’s other regulated instruments – Cytonn Money Market Fund, Cytonn Balanced Fund, and Cytonn Equity fund,among others – continue to function and complete payouts as normal at the moment.

He however lamented that the entire business is being jeopardized by the negative comments of aggrieved investors and what seems to be a regulatory witch hunt.

Yesterday’s statement from CMA regarding one of Cytonn’s privately placed products, CHYS, had the regulator stating that CHYS is being investigated “for criminal violations” because it is unregulated.

On their part, Cytonn says CHYS was structured as a private offer within the meaning of Regulation 21 of the Capital Markets (Securities) Regulation after consultations with the regulator. This represents yet another chapter of the slugfest.

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