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Pension funds a massive force for development in Africa

15 July 2014 Tashia Jithoo, Bowman Gilfillan
Tashia Jithoo, a Partner at pan-African corporate law firm, Bowman Gilfillan.

Tashia Jithoo, a Partner at pan-African corporate law firm, Bowman Gilfillan.

Retirement funds have the potential to become a major force for development in Africa, including infrastructural development, which is ideally suited to the investment needs of pension funds.

According to Tashia Jithoo, a Partner at pan-African corporate law firm, Bowman Gilfillan: “Although the pension funds industry is still relatively young in many African countries, it has the potential to be a massive force for development, not least because of the suitability of long-term infrastructure assets to the liabilities of retirement funds.

“Public and private sector pension funds are already significant contributors to capitalisation values on stock exchanges throughout Africa, and they have the potential to similarly impact alternative asset classes like infrastructure and private equity.”

In South Africa, where pension funds are well developed, changes to Regulation 28 of the Pension Funds Act, which governs how pension funds can invest, allows funds to invest up to 15% of their total assets in alternative investments – up from the previous limit of 2.5%.

According to the National Treasury, total assets under management of some R2.3 trillion make South Africa’s retirement funds industry one of the world’s largest relative to gross domestic product. Retirement funds, including retirement annuities, are home to more than half of South Africa’s household savings.

Says Ms Jithoo, “A 15% allocation, which is roughly in line with international norms, by domestic pension funds towards alternate assets would equate to about R350 billion.

“The importance of infrastructure is its facilitation of development and economic growth that allows the public and private sectors to expand capacity and employment, in the process reducing poverty and inequality.”

The African Development Bank (AfDB) recently called on African institutions to take the lead in funding infrastructure projects on the continent. Private sector participation, which requires well prepared projects, is seen as essential for delivery under the Bank’s Programme for Infrastructure Development in Africa (PIDA).

Bowman Gilfillan will be hosting the Pension Funds Investing in Africa Conference in Johannesburg on 24 and 25 July 2014.

The conference brings together representatives from some of the largest pension funds in Africa, as well as asset managers, investment consultants, advisers and product providers to explore the role and opportunities for pension funds as institutional investors in Africa.

The conference will investigate the legal issues, transactional realities and risks of investing or creating products in Africa.

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