Africa Private Equity Insider: In Pursuit Of Pensions

Pensions are big in Africa — surprisingly so. Sub Saharan pension funds comprise about $380 billion in total assets. To put that number on a scale, consider that it bests South Africa's Gross Domestic Product (GDP) by about $30 billion, making it the third largest economy in Africa after Nigeria!

However, while private equity is a stalwart of pension investors around the world, very little African pension capital goes towards private equity. "There is approximately $29 billion of pension capital [in Africa] that could be invested into private equity," Nonnie Wanjihia, executive director of the East Africa Venture Capital Association, told AFKInsider.

"Regulatory reforms are taking place across the continent as asset managers are being encouraged to diversify their investments," she added. In Kenya, private equity is part of an "other" category that is allowed to comprise 10 percent of pension assets; before last year, when Ascent Capital attracted a $4 million investment from Kenyan pensions, the most recent investment into the asset class took place in the 1990s.

In Nigeria, less than 0.25 percent of total pension assets are in private equity. By way of comparison, private equity enjoys an average target allocation of 8.3 percent in American pensions. "Our view is that a limited understanding of the workings of private equity — and of its notable benefits — are at the heart of this tepid investor response," Erika wan der Merwe, chief executive officer of the Southern African Private Equity and Venture Capital Association, told AFKInsider.

She's referring to a regulatory change in South Africa that allows pensions to allocate up to 10 percent of their portfolios to private equity, from 2.5 percent previously. "In the South African market," she says, "A handful of pension funds are very comfortable with private equity." Otherwise, "the take-up of this regulatory allowance has been disappointing."

In other words, there is a huge amount of marketing to do and a lot of opportunity.

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