The public needs education on private equity and risks

 

Workers in the informal sector are still not covered by the social security scheme. Photo/FILE 

In an interview with The EastAfrican, David Ashiagbor, the economic adviser at the Commonwealth Secretariat spoke about efforts by the organisation to develop private equity on the continent.

There was a private equity roundtable in Nairobi, organised by, among others, the Commonwealth Secretariat last year. What was the outcome from the engagement?

The East Africa Private Equity Roundtable that was held in Nairobi in May was the first in a series of regional roundtables that we set out to hold.

We also had the Southern Africa Private Equity Roundtable in Gaborone in October and are planning the West African Private Equity Roundtable this May in Accra. It is from the feedback of all these meetings that a decision will be made on the way forward.

What are some of the emerging issues from the roundtable meetings so far?

One of the main issues that are coming up from the meetings is the need for further education and training and capacity building on private equity.

However, this could not be achieved through the fora because the audiences in Nairobi and Gaborone were from different backgrounds, from fund managers to trustees of pension funds, making it difficult to address their needs in one sitting. This calls for smaller and focused workshops for the different groups.

There is also need for more research on private equity. Everyone keeps talking about domestic capital but one missing ingredient is knowledge of where the big pools of such funds are in Africa.

Then there is a gap in knowledge of the specific barriers, such as regulatory issues, that hinder the continent from tapping into such pools.

What are the gaps in knowledge?

There is need for education on all aspects of private equity and its risks for different players.

This will get the local investors to the point where they know the right questions to ask and can make independent decisions to invest in private equity; pension funds understand how to manage risks; and regulators the systems to regulate for different kinds of risk.

Is the kind of research you have mentioned something that the secretariat would be willing to pursue?

 At the moment, it has not been formally decided in what way the Commonwealth Secretariat intends to focus its efforts on the African private equity scene, but putting together a handbook on this is crucial with a guide on what local institutions that want to invest in this asset class need to know.

Isn’t such a study of domestic sources of capital an expensive undertaking?
  Focus is critical, since there are no resources to do this everywhere. Besides, it needs not be very accurate and can just be a desk study to provide a baseline. It would just involve establishing who the key pension funds are and the size of assets, as well as the insurance industry and other players with long term money.

There have been concerns by players about the regulatory frameworks in East Africa prohibiting investment by pension fund into private equity funds. Comment.

Regulatory frameworks are complex and would have to be unpacked to be addressed. For instance, are there specific allocations for private equity or are they lumped under other assets that the funds can invest in? Then there are the restrictions on the area that they can invest in.

Usually pension funds cannot invest outside their country of origin. This conflicts with the working of private equity funds that need to diversify in terms of geographical region and sectors to succeed.