Should African Pensions be Looking Closer at Private Equity?


October 6, 2014

While the private equity community generally regards Africa as being the future jewel in the crown of the marketplace, the financial sector native to the continent has yet to fully embrace it. The Financial Times is currently running an extended feature looking at this.


One of the biggest trends with current African investment is that much of the money flocking into the continent is from Western world pensions. Kohlberg Kravis Roberts & Co (KKR), the New York City based private equity giant, made such an investment in June of this year, committing $200million into an Ethiopian business.


However, with the exception of South Africa, pensions across the continent are generally steering clear of private equity investments. Not only is this preventing the private equity marketplace across Africa from seeing the growth it potentially could, it is also doing the same to African pension pots.


There is no concern about a lack of pension funds in Africa, as there is known to be billions of dollars – a reported $350billion in sub-Saharan Africa alone – saved in various schemes across the continent.


Kenneth Kaniu, of Johannesburg asset manager STANLIB, told the Financial Times, “Pension assets [in Africa] are increasing at a rapid pace, but in terms of finding investment opportunities they are not keeping up and regulation is not as supportive as we would like.”


Kaniu is well placed to comment, with STANLIB managing the assets of 60 Kenya based pensions funds. The firm is keen to increase its exposure to private equity, aware of the opportunities that may present themselves as a result.


Kaniu’s sentiments regarding regulation echo the fears of industry commentators as well as others managing African pensions. In addition to regulatory obstacles, there are generally poor incentives for pension funds to invest in Africa, while trustees continue to be hesitant and are generally risk averse when it comes to private equity investment.


One big problem is that trustees themselves don’t want to run the risk of being seen as personal failures, which could then negatively influence whether they’re re-appointed as a trustee or are able to find work elsewhere.


One regulation is the 10% cap across many parts of Africa, which restricts pension investments in private equity to this ceiling. There are also additional specific regulatory checks that must happen, owing to private equity’s status as an “Other” type of umbrella investment in many territories.


While the volume of pension investments are growing in some locations, including Kenya, these are generally going into short-term initiatives that offer low growth but minimal risk. Government bonds were highlighted by Kaniu as an example of a traditional investment focus for pension managers. Others include national government debt, domestic stocks and shares, and property.


The Kenya Pension Power Fund was granted approval from regulators earlier this year to invest $4million into a private equity fund. While this represents a tiny percentage of the monies held in pensions, it is a significant step in the right direction for Africa.

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