For more than a decade, Money Market Funds were the undisputed champions of Kenya’s retail investment universe.
They combined high yields, daily liquidity, and near-zero volatility at a time when Treasury bills paid handsomely and banks offered little incentive to save.
At their peak, leading MMFs delivered annual returns north of 16%, making them the default parking bay for households, SMEs, and even corporates managing short-term cash.
That era is now decisively over.
By late 2025, the macro backdrop that sustained MMFs had flipped. The Central Bank of Kenya has cut its policy rate to 9% in a bid to stimulate growth, Treasury bill yields have followed suit, and MMF returns have compressed sharply.
The best performers now sit around 11–12%, with many funds struggling to stay above 10%. As yields have fallen, investors have begun to look elsewhere, and Special Funds have emerged as the most credible alternative.
The Decline of the MMF Supercycle
Money Market Funds were built for a high-rate environment. Their portfolios are dominated by short-dated government paper, bank deposits, and near-cash instruments.
When rates were rising between 2022 and 2024, that model worked spectacularly. Assets flooded in, competition intensified, and MMFs became the single largest component of Kenya’s collective investment schemes.
But once rates turned, the limitations of the model became clear. Treasury bill yields fell rapidly, dragging MMF returns down with them.
With more than 40 MMFs competing for the same shrinking pool of short-term instruments, differentiation evaporated. Fees were compressed, strategies converged, and innovation stalled.
MMFs remain safe. They remain liquid. But they are no longer compelling growth vehicles.
Why Special Funds Thrive Where MMFs Falter
Special Funds operate under a very different regulatory philosophy. While they sit within Kenya’s collective investment framework, the Capital Markets Authority gives fund managers far greater latitude over asset selection and strategy. That flexibility has proven decisive in a low-rate world.
Unlike MMFs, Special Funds are not confined to domestic fixed income. They can allocate capital across offshore equities, commodities, real estate, private credit, structured products, and derivatives.
Many employ active strategies such as long/short trading or tactical leverage designed to generate returns independent of local interest-rate cycles.
The trade-off is clear. Special Funds accept higher volatility, reduced liquidity, and stricter investor thresholds in exchange for materially higher return potential.
Lock-ins are common, minimum investments are higher, and performance fees are often charged. But for investors willing to tolerate these constraints, the payoff has been substantial.
The Data Behind the Disruption
By September 2025, Special Funds managed Sh137.8 billion, accounting for 20.3% of Kenya’s unit trust assets, up from below 20% a year earlier.
Over the same period, MMFs slipped to 58.9% market share, holding roughly Sh400 billion. Special Funds have now become the second-largest CIS category, rivalling traditional fixed-income funds.
This growth has not been driven by a single outlier. The number of licensed Special Funds has climbed to more than 30, with new approvals accelerating as investor demand rises and regulators grow more comfortable with the category.
At the centre of this shift sits Mansa-X, launched in 2019 as Kenya’s first Special Fund. Its success in growing to over Sh100 billion in assets and delivering consistent mid-to-high-teens returns across market cycles validated the model and opened the door for competitors.
Performance Has Done the Talking
Several Special Funds have materially outperformed MMFs over the past two years, particularly as interest rates declined. Mansa-X has sustained average net returns of roughly 18% per annum since inception.
Oak Special Fund delivered standout performance in 2024 and maintained strong momentum into 2025. Kuza Momentum, although more volatile, recorded exceptional gains during favourable market conditions.
READ ALSO:Top Special Funds in Kenya and How to Choose the Right One (December 2025 Update)
More conservative offerings from Old Mutual and Etica have attracted investors seeking higher income without venturing fully into aggressive strategies.
What unites these funds is not a single asset class but flexibility: the ability to pivot across markets and geographies as conditions change. That adaptability has become their competitive advantage.
Why This Is Not the End of MMFs
Despite the rhetoric, Special Funds are not eliminating Money Market Funds. They are displacing them at the margin.
MMFs still play a vital role in portfolios: emergency liquidity, short-term savings, and capital preservation. What has changed is investor behaviour.
Rather than concentrating all surplus cash in MMFs, savers are increasingly segmenting their capital, keeping liquidity in MMFs while allocating growth capital to Special Funds.
This evolution mirrors what happened in more mature markets years ago. As yields normalise, cash stops being an investment strategy and becomes a utility.
The New Reality for Kenyan Savers
Special Funds have earned their reputation as “money-market killers” not through hype, but through maths. In a low-rate environment, they offer something MMFs cannot: the possibility of real, inflation-beating growth.
They are not suitable for everyone. Volatility, leverage, and liquidity constraints demand discipline and a longer time horizon.
But for investors willing to move beyond cash, Special Funds have become the most credible next step.
Kenya’s investment market is growing up. Money Market Funds built the foundation. Special Funds are now shaping what comes next.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Past performance is not a guarantee of future results. Always consult a licensed financial adviser before investing.
Ronnie Paul is a seasoned writer and analyst with a prolific portfolio of over 1,000 published articles, specialising in fintech, cryptocurrency, climate change, and digital finance at Africa Digest News.
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