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.”
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