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Pension Funds

By Gemma Ware
Posted on Monday, 21 September 2009 17:15

Safe coffers open up to new players

The financial constraints of the global economic crisis have led African pension funds to supply domestic capital for a burgeoning African private equity industry. In these tougher times, the continent’s private equity firms have been keeping close to home rather than raising funds from large international institutional investors. The interest has come from both directions, and the Development Bank of Southern Africa has been running over-subscribed seminars for pension-fund trustees on investing in private equity, according to Gloria Mamba, head of its private equity unit.

“The balance has shifted because, particularly in private equity, it’s been so extraordinarily hard to raise money,” says Jonathan Berman, managing director of Fieldstone Private Capital Group, an investment-banking firm in Johannesburg. “We have seen a lot of interest from funds, in places like South Africa and Botswana, but decision-making is still quite hard to come by.” ?

Pension funds traditionally invest in low-risk asset classes: real estate, government treasuries, money markets, and listed and fixed-income securities. The amount they can spend on ‘alternative assets’, the class under which private equity falls, is often limited.

Surplus capital ?

The problem for the pension funds is not one of liquidity, but quite the opposite. Investors have a surplus of domestic capital, largely because of the lack of suitable domestic instruments that meet their often very conservative criteria. There are now signs in some countries that regulation may be beginning to loosen. In Botswana, the Botswana Public Officers Pension Fund is planning to break down the money it allocates to alternative assets into dedicated amounts for private equity, hedge funds and real estate. In Namibia, the government has ordered pension funds and life insurers to invest 5% of their assets in greenfield projects or start-up companies within the country by January 2010.

South Africa is easing limits on the amounts institutional investors can invest outside the country – starting with a rise in the foreign exposure limit for pension funds from 15 to 20%. As a result, Eskom Pension and Provident Fund, which already has three Sub-Saharan Africa asset managers, is beginning to look for more.

South African institutional investors are involved in domestic development, particularly in infrastructure, which can offer regular long-term cash flows. In Gauteng Province, the Gautrain rail link has teamed up with insurer Old Mutual, while pension funds sit alongside government as investors in the Gauteng Fund, a development fund for the province, according to its chief executive, Sulanji Siwale. There are examples to follow from Asia on how institutional money can be harnessed: in the early 1990s, Malaysia actively encouraged pension funds to get involved in infrastructure finance and helped finance a private infrastructure boom.

In Nigeria, the onus is now on fund-raisers to provide investment opportunities with the right risk profile for cautious institutional investors, says Solomon Asamoah, chief investment officer at the Africa Finance Corporation. “That’s really the challenge now, to find instruments outside of their borders, in the continent, that have the right risk profile, because they’re very risk-averse.”

Whether signs of an economic recovery and a renewed interest from US, European and Asian investors in Sub-Saharan Africa will result in a reversion to former habits is too early to tell, but as GDP and life expectancy in Africa increase, so too will the number of pension-holders. Those countries that have created the right framework through which the money can be invested, both domestically and within the continent, will reap the rewards. l??37%??of South African private equity firms said they would raise new capital domestically in a confidence survey for the first three months of 2009