Regulatory Improvements in Key African Countries Making It Easier For Investors

The trends in 2014 show continued interest in private equity. A number of deals have been closed or are nearing conclusion and a number of funds are being raised to tap in to the market. Alongside the more traditional players, such as Helios, Actis and Abraaj, we are seeing increased appetite from global private equity firms, with a number of the big players, including KKR and The Carlyle Group, increasing their activity on the continent. Carlyle recently announced a final close of The Carlyle Sub-Saharan Africa Fund (CSSAF) with US$698m, 40 percent above target and the largest ever fundraising for a first time Africa fund.

Large transactions are also gaining pace, with Abraaj’s US$350m investment in Ghana’s Fan Milk last year, and in the power sector Actis has led a US$202m deal in Cameroon’s national electricity utility company, Société Nationale d’Electricité (SONEL).

The public sector is increasingly playing a positive role in the availability of capital for the private equity markets. Pension funds in developed countries are expected to triple their allocation to African private equity over the next two years, according to a recent survey by RisCura, AVCA and SAVCA. African pension funds and sovereign wealth funds are also following suit as they broaden their investment mandates to allow them to allocate funds to private equity firms at home.

In 2013 SJ Berwin highlighted the main reforms in this sector from South Africa, Nigeria and Kenya. On the back of recent changes in pension regulations, the largest pension fund investment into private equity on the continent has been in South Africa, where the Pension Funds Act was reformed in 2011, allowing up to 10 percent allocation to the asset class, up from 2.5 percent. These reforms allow for pension funds such as GEPF to commit up to US$9bn to private equity, according to an article by R. Keeler in the African Investor, March 2012. GEPF, via its asset manager the Public Investment Corporation (PIC), raised 81 percent of the total private equity funds in South Africa in 2013, according to Moneyweb.

In Nigeria, until recently, the Regulation on Investment of Pension Fund Assets prohibited the country’s pension funds investing in unlisted securities. In 2010 changes to the regulations of the country’s pension funds were implemented, allowing for the first time up to 5 percent of assets, which would amount to approximately US$800m, to be invested in private equity and venture capital (estimate from All Africa, 24 April 2011). Additionally, PenCom provided education around the asset class to pension administrators, which attracted more interest in the sector. An example being the Future Generations Fund, run by Nigeria Sovereign Investment Authority, which allows for an allocation to unlisted securities, including private equity and real estate.

Similarly in Kenya, the Capital Markets Authority (CMA) and the Retirements Benefits Authority (RBA) have reviewed their allocation limits for private equity, which can now amount to 10 percent of total funds. According to SJ Berwin, the Kenyan regulators are also looking to address other limits on pension fund investment in private equity, for example allowing private equity funds to list on the Nairobi Stock Exchange, which will help to reduce liquidity concerns for pension funds.

Other jurisdictions which are imposing similar regulatory changes are Namibia, Ghana, Uganda and Senegal. This shows the development of the financial regulations in Africa which is opening up public funds, an enormous source of home-grown wealth, to alternative asset classes.

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This BLOG  looks at pensions and their impact on what are called Public Private Partnerships or P3’s these are not really about private funding at all but about two streams of public funding, pensions and government with private capital a third partner.

We will also deal with other pension matters, such as Defined Contribution Plans (DC) vs Defined Benefit (DB) PLANS, the weakness in private plans, the need for pension reform in public pensions to have shareholder rights, directorships and ethical investment directives and policies. 

Finally taking the long view we will show how these funds are forms of evolving social capital that is dominating private capital as we evolve into socialization of capital. 

Click HERE to read more....