Flush with cash, pension funds look for opportunities in Africa

Pension funds in Africa have the financial muscle to exert strong influence over their underlying investments, and should help drive the product innovation needed to facilitate the allocation of more capital to the continent.

David Geral, Partner at pan-African corporate law firm, Bowman Gilfillan and manager of the firm’s pensions, healthcare and employee benefits group, commented that, ”By virtue of their size as institutional investors, pension funds as active shareholders have significant influence over their investments.

“While funds in Africa have large amounts of capital for investment domestically and in the rest of Africa, there is some frustration about the lack of available products and opportunities.

“There’s a gap between the capacity to invest and the creation of appropriate investment vehicles. Pension funds should collaborate and communicate with product suppliers and regulators to address this challenge.”

Mr Geral said that, with democratic boards that represent members and employers, the activities of pension funds, including investment strategy, should reflect the interests of their participants.

Regulation 28 of the Pension Funds Act, the prudential investment regulation that governs how and where South African pension funds can invest (and which obliges boards of trustees to consider environmental, social and governance factors) is designed partly to encourage investment into the rest of Africa.

Similarly, there are regulations in a number of African jurisdictions that allow funds to invest in other African countries.

“However in Ghana, Namibia and Botswana funds are not using their offshore allocations to the maximum. South African pension funds are also under-represented in Africa and are not filling up their allowance.

“One reason for this is that the investment products and opportunities they need are not sufficiently available. Pension funds have the capital and should help to drive greater product innovation in the market. This represents a great opportunity for funds and their members and for African economies,” said Mr Geral.

He added that African pension funds should take a hard look at their investment philosophy towards agriculture and infrastructure. Some sensitivity around foreigners owning land aside, these assets offer a close correlation between the interests of their stakeholders, including the opportunity to capture the improvement in underlying value for pension funds.

Mr Geral was speaking ahead of Bowman Gilfillan’s 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.