Financial Sector Deepening Africa (FSD Africa) recently released a market report that focused on private equity investing for pension funds in East Africa.
The report stated that globally, private equity is one of the sectors that has rapidly developed due to strong support from pension funds. On the contrary, in East Africa, private equity firms get very little funds from pension schemes.
The report stated that the reason behind the slow uptake of private equity investment by pension funds in East Africa is due to a knowledge gap.
The report further stated that the factors that influence investment decision of pension funds include the size of funds in the scheme. As a result, some pension firms are not able to invest in Private Equity which often requires large sums of investments.
Another factor that influences the investment decision of pension funds is the risk perception they have toward private equity investments. It is perceived that private equity risk is fixed and the investments provide a considerably shorter time frame of less than 60 months.
Therefore from the market report findings, there is a need to develop an appreciation of the asset and put it in line with the reality of the industry in order to apportion risk.
Therefore the investment guide developed by East African Venture Capital Association (EAVCA), Financial Sector Development Africa (FSD Africa) and International Finance Corporation (IFC) will act as a reference tool for decision guidance that will be used by East African pension scheme trustees as they contemplate investing in private equity.
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