African pension funds need more PE education

Alignment with DFIs is also a key pillar for private equity to attract more local LPs, who are seeking ‘assurance’, panellists said during AVCA's annual conference.

More education is needed for African pension funds to invest more capital in private equity, LP panellists said at a conference in Senegal on Tuesday.

AVCA conference 2022
KenGen’s Muriuki (second-right): we need more education

Speaking at the African Private Equity and Venture Capital Association’s annual conference, Josphat Muriuki, chief executive and trust secretary of KenGen Pension Schemes, said: “We need more education to understand this asset class… It’s one of the most difficult things for us… 10 percent of our assets, or $1.3 billion, is available to invest in this asset class. But you would need to explain [private equity] to the trustees and make them understand.”

Muriuki also said that African pensions and retirement schemes need to come up with a model that sustains education within the organisations, especially as the new generation of trustees come in.

He noted that KenGen has invested in four private equity funds and they are “looking for more”. However, pension funds in developing countries like Kenya face challenges including the cost of due diligence. As such, Muriuki noted that several pension funds on the continent have started pooling resources for due diligence, manager selection, fees negotiation and larger ticket sizes.

Sifiso Sibiya, head of investments at South Africa’s Government Employment Pension Fund, said pensions in the region mostly align their work with development finance institutions.

“It does make things a bit easier to say there’s another party [in the GP’s LP base] who believes in the investment thesis. GEPF, for example, does work with the International Finance Corporation on various engagements, training and management of some its funds, he added.

GEPF, which has about 2 trillion South African rand ($125 billion; €118 billion) and invests roughly 3 percent of its assets in PE, factors in the presence of DFI commitments in its own process, Sibiya said.

It has backed funds managed by AP Ventures, Verod Capital Management and African Capital Alliance, PEI data shows.

Muriuki added that KenGen looks to DFIs for assurance. “As we are from a developing country, our schemes are also developing, and we are not yet there. He noted that the involvement and prior work of DFIs is important when they select their own managers.

From a US standpoint, meanwhile, Alameda County Employees Retirement Association trustee Tarrell Gamble said pension funds in the US do not necessarily co-invest or align themselves with DFIs.

“For us it’s more, ‘Who’s the owner? Who are the employees – can we trust them? And what’s the rule of law in the countries they are investing in?’

“You would get more US investors alongside African pension funds if African pension funds went in first,” Gamble added. “One of the things you get from US investors… is a fear of missing out. FOMO is real. That’s just how it is. Particularly now in the US where there is so much dry powder for PE – almost $2 trillion of uncalled capital waiting for an investment opportunity – we want to make sure that the person we are sitting across the table [from] can essentially call the capital, put it to work and get returns for our fund.”

African PE and VC fundraising reached a record $4.4 billion in 2021, a 63 percent increase from the $2.7 billion annual fundraising average for the preceding five years, according to AVCA’s 2021 African Private Capital Activity Report