Cytonn Investors Are Running Out Of Patience With The Firm


Last month, Cytonn Investments sued John Matheka – one of its investors – claiming Sh17 million for defamation after serving him a cease and desist notice.

While the investment firm argued the move was to protect its brand from harm, going after one of its clients highlighted the souring relations between the firm and investors over the past year.  

This is after the firm invoked a force majeure extending the maturity date of two of its real estate funds – the Cytonn High Yield Solutions (CHYS) and the Cytonn Project Notes – to June this year.

In the extension framework, Cytonn proposed three options for investors, including the extension of the current maturity dates by a year, conversion of investment into real estate units or entering a standstill agreement where no withdrawals are made for two years and with a one-off renegotiation fee.

But a section of investors in the two real estate funds declined any of the options and have since been unsuccessfully fighting to withdraw their money.

The acrimony has led to a bitter war of words on and offline. This includes the filing of liquidation proceedings against Cytonn in the High Court. Other investors have written to authorities such as the Capital Markets Authority (CMA), voicing their complaints.

The two funds are, however, unregulated. Home & Away looked at some of the issues raised by the investors and also spoke to Cytonn Investments Chief Executive Edwin Dande in a wide-ranging interview on the state of its funds.

Dande explained that only the two real estate funds are illiquid, with the rest, including money market, equity, balanced and pension, doing well.  

“If you invested in real estate at such a time as that of Covid-19, you cannot come out because there is illiquidity,” he said.

Dande assured that investors would start getting their money once the extension of maturity lapses and no money would be lost, adding that “capital in real estate never runs away as the asset is there”.

“That’s why even now when people make noise, I’m very calm because I know the assets are there,” he said.

According to Dande, all the 4,000 investors have elected a board and whenever there’s an issue, he as the investment manager lays it out to the board, which endorses or rejects the options presented.

It was the board that declared the force majeure, he said, and only about 50 investors have had a problem with the decision.  

“When a force majeure is declared, it is binding to everyone. Investment is about risk and return. You cannot say when the return is there I’m part of it, but when the risk comes I want out,” said Dande.

He added that the investment agreement between Cytonn and investors was against early redemptions among other clauses that the investors are now fighting.

Among the criteria, for example in the contract for CHYS, required investors to have a three-year investment experience, a financial adviser and also the invitation be approved by an existing partnership.

Being a private offer, Cytonn was looking for well-heeled individual investors.

Dande also pointed out that the contract is against early redemptions and don’t stand a chance in court. He said the disgruntled investors will, therefore, have to wait for the maturity extension periods or take up a unit.

“All of them will lose (if they take court action)… read the contract; it’s so clear, litigation is about facts and figures. The contract is so clear what we do in the event of illiquidity,” said Dande.


Investors, on the other hand, accuse Cytonn of making decisions unilaterally, poking holes into the partnership agreement.

They have also wondered why they are being asked to deposit cash for housing units yet the firm has their money.

Another contentious issue has been the extension of the maturity period by 12 months instead of six as provided in the investment agreement. Cytonn had already done a three-month extension that comes to an end in June 2020 but went ahead to add another 12 months, citing the state of the economy due to Covid-19.

Investors also have an issue with the advisory board, with one retired investor who has over Sh20 million in CHYS terming it a “rubber stamp advisory board.”

The investor, who had been putting money in Cytonn since 2015, said he has written to the firm, objecting to the extension of the maturity date and the capitalisation of interests but had not received a response.

“This is very unethical and is a breach of contract. The management is not providing any viable solution to us investors,” said the investor who sought anonymity for fear of being victimised.  

In a letter seen by Home & Away, the investor pleads with Cytonn to open conversations on a payment plan. “These are desperate times, and we should not be penalised for investing in your company. We urge you to, at least, offer us a payment plan,” said the investor. 

While acknowledging the risk factor, he wondered why the company continues to hold his money.

“The risk factor is true, but in my case, I knew when the fund would start getting risky so I invested to ensure that the maturity date arrived before the risk. Yet post-maturity he (Dande) is holding my funds,” he said.

But according to Dande, it was the board that made the extension offers.

“Seventy per cent of them can call an EGM (extraordinary general meeting) and fire us and appoint another fund manager. CHY’s is a company with its board. We are merely investment managers. In fact, our true relationship with them is that they have a license and can change the name Cytonn today and call it something else,” he said.

Matheka, who’s now battling Cytonn in court, is one of the investors who rejected the three options presented by the firm and wanted his investment back plus interest.

He was vocal on social media until Cytonn took him to court, saying his statements were intended to damage the firm’s reputation.

“We never believe in suing clients, but once you start seeing clients actively trying to undermine the brand, we have to take that step,” said Dande.

Kenneth Kasinga is another investor who rejected the three options presented by the board. Last year, Kasinga sued the investment firm, saying he invested Sh3 million in the private offer that the company initially said targeted less than 100 people only to find out Cytonn had raised money from 3,000 investors.

Kasinga wanted a Nakuru court to declare CHYS a public offer subject to CMA regulation and also issue a permanent injunction restraining Cytonn from extending the maturity date of the fund.

He also sued the firm for breach of contract. However, the court in November referred the matter to arbitration as per the Investment Agreement and Partnership Agreement, much to his disappointment.

“We are not legitimate partners in CHYS as we are not registered as par LLP (limited liability partnership) regulations,” Kasinga told Home & Away. Investors have also taken issue with the requirement to pay a deposit for the houses under the extension framework that allowed them to convert their investment to real estate units at the current market price.

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