Retirement schemes’ investment in Private Equity (PE) and venture capital firms surged three times in six months to hit Sh1 billion last December.
Retirement Benefits Authority (RBA) says the cash invested by pension fund managers and trustees rose from Sh250 million in June 2017 and Sh220 million in December 2016.
This followed investment guidelines issued in 2016.
“There is now increased understanding of the category amongst trustees and fund managers,” RBA acting chief executive Nzomo Mutuku said via email.
“Schemes are keen to diversify their investment portfolios to mitigate risk and increase returns, and this category offers an opportunity for diversification, which is not correlated with other traditional investments.”
Value of workers savings
The value of workers’ savings in PE funds is, however, remains just 0.09 per cent of the total industry assets, estimated at nearly Sh1.1 trillion as at last December, against a regulatory cap of 10 per cent.
Investment in PE firms – previously done under other assets category with a limit of 10 per cent of total portfolio – was part of the Finance Act 2016, which increased investment classes to 14 from 10 under Table G of RBA regulations.
The guidelines, under the Retirement Benefits Act 2016, were aimed at generating higher returns for retirees by limiting exposure to risks through diversified investments.
RBA has been putting ceilings on asset classes for pension schemes since 2000, helping curb arbitrary investment by fund trustees who previously could inject workers’ savings in ventures run bytheir cronies.
Investment opportunities in PE firms and venture capitalists, which usually look for an average annual return of about 25 per cent for five to 10 years, has been low largely because of little awareness among pension schemes trustees.
Nairobi is a major destination for private equity and venture capital firms with deals estimated at $430 million (Sh43.48 billion) in 2017 compared with $340 million (Sh34.38 billion) a year earlier, according to East African Private Equity and Venture Capital Association (EAVCA).
EAVCA co-executive director Eva Warigia said the number of pensions that have invested in PE firms has grown to 13 from two in 2015.
“For East Africa the (PE) asset is still young. Beyond fund returns, the asset allows the pension funds to diversify their portfolio geography to tap to gains across the region and Africa,” Ms Warigia said.
“We also acknowledge that there is limited access to PE investment information, which may hamper investment in the asset.”