EAVCA: East Africa Pension Fund Private Equity Allocation Lags 10% Limit

• East African pension funds currently allocate only 0.7% of their investments to private equity, significantly below the 10% regulatory limit.
• The East Africa Private Equity and Venture Capital Association (EAVCA) highlights the need for greater investor education, evidence of returns, and policy predictability to boost this allocation.
• Between 2022 and 2025, private capital investments in East Africa reached an estimated $7 billion, creating over 100,000 jobs.
• Industry leaders emphasize the importance of local capital taking the lead in regional investments and the need for more early-stage risk-takers.
• Calls for greater certainty in taxation and investment regulations are paramount to encourage long-term institutional commitments to private markets.

Lawyers advising pension funds or private equity firms in East Africa should note the significant untapped potential for PE investments, currently well below regulatory limits, and the critical role of advocating for greater policy predictability to unlock this capital.

East African pension funds represent a substantial, yet largely untapped, reservoir of long-term capital for businesses across the region. Despite a growing demand for alternative financing options, the current East Africa pension fund private equity allocation remains significantly below regulatory allowances. Data from the East Africa Private Equity and Venture Capital Association (EAVCA) indicates that pension funds presently commit only about 0.7 percent of their total investments to private equity, a stark contrast to the permissible allocation limit of up to 10 percent.

This considerable disparity highlights a critical challenge in the region's capacity to effectively channel domestic savings into productive sectors such as businesses and infrastructure. Companies frequently encounter limited access to crucial growth capital, hindering their expansion and innovation. Christine Maina, the CEO of EAVCA, underscored this gap, reiterating the 0.7 percent allocation against the 10 percent allowance, emphasizing the urgent need for increased participation from pension funds to bridge this funding deficit.

The potential impact of increased EAVCA pension fund PE investment is substantial, as evidenced by recent private capital activity. Between 2022 and 2025, an estimated $7 billion (equivalent to Sh 906 billion) in private capital investments flowed through 30 funds managed by 14 different fund managers, contributing to the creation of over 100,000 jobs. This demonstrates the significant economic benefits that private equity can deliver to the region.

David Owino, Chairman of EAVCA, articulated a vision where greater domestic participation in private equity would enable East Africa to retain a larger share of the returns generated from investments within its own economies. He stressed the importance of local capital taking the lead in investing in local entities, rather than relying solely on external investors. Owino highlighted that ample local capital is available, awaiting deployment into the region's burgeoning opportunities.

Unlocking the full potential of pension fund alternative investments Africa requires addressing several key barriers. Christine Maina of EAVCA pointed to the necessity for enhanced investor education, the presentation of stronger evidence of returns from private equity investments, and the establishment of a more predictable policy environment. EAVCA is actively engaged in initiatives focused on education and awareness, alongside showcasing real-world case studies of successful investments to attract more local capital.

Beyond capital availability, Muathi Kilonzo, Managing Director of NCBA Investment Bank, identified another critical challenge: a scarcity of investors willing to undertake early-stage risks. While numerous bankable and interesting opportunities exist, Kilonzo noted a lack of 'angel investors' in Africa who typically provide early-stage funding and support ventures through their initial scaling phases. This highlights a gap in the risk-capital ecosystem that needs to be filled to nurture nascent businesses.

A crucial factor for increasing East Africa private capital regulatory certainty and encouraging greater pension fund participation is the stability of the policy environment. Industry leaders are advocating for greater predictability in taxation and investment regulations, warning that frequent policy changes can significantly deter investment decisions, particularly those that span several years. The long-term nature of private equity investments necessitates a stable and clear regulatory framework to provide investors with confidence.

Predictable policies are essential to instill greater confidence among institutional investors, encouraging them to commit more capital to private markets. This, in turn, would substantially increase the pool of funding available to East African businesses, fostering economic growth and job creation. Lawyers advising pension funds or private equity firms in East Africa should note the significant untapped potential for PE investments, currently well below regulatory limits, and the critical role of advocating for greater policy predictability to unlock this capital.

Lawyers advising pension funds or private equity firms in East Africa should note the significant untapped potential for PE investments, currently well below regulatory limits. This presents an opportunity for clients seeking to deploy or attract capital, but also highlights the need for legal counsel to navigate existing regulatory frameworks and advocate for greater policy predictability, particularly regarding taxation and investment regulations, to unlock this capital.

Source: Original reporting via Capital FM