It is not just European and U.S. pension funds that are slow to invest in the opportunities available on the Africa continent: South Africa-based funds also need encouragement.
But changes to regulation and the way domestic pension funds are permitted to invest could be all it takes.
At a U.S.-Africa summit held in Washington two weeks ago, Hendrik du Toit, CEO of Investec Asset Management, noted that “intra-African investment is not high enough,” and that “the capital pools locally don’t move fast enough across borders.”
Regulators in Africa are moving to encourage intra-Africa investment. South African pension funds, for example, can invest up to 25% of their portfolio in non-domestic assets, but this allocation rises to 30% if they allocate to the rest of Africa.
“We have seen a number of pension funds take advantage of that,” said Jarred Glansbeek, London-based CEO of consultancy RisCura. “That has paid off unbelievably well for them as returns have been phenomenal. They have also invested in unlisted Africa, which has been more profitable.”
There are also changes to the way pension funds can allocate to alternatives — although it is only recently that pension funds have been making more allocations, said Doug Lacey, Johannesburg-based partner at LeapFrog Investments.
The largest defined benefit pension fund in Africa, the South African Government Employees Pension Fund, Pretoria, has about 1.5 trillion South African rand ($142.4 billion) in assets.
In its 2012 fiscal year annual report, executives at the fund announced that it would be stepping up investment in Africa, by allocating up to 5% of its portfolio to pursue opportunities outside of South Africa. Up to that point, the GEPF’s presence had been largely confined to a 0.23% allocation to the Pan African Infrastructure Development Fund.
Hemal Naran, Pretoria-based head of investments and actuarial at the fund, said the value of investments in Africa ex-South Africa now amount to $1 billion — about 0.7% of the total fund. Allocation remains dominant toward South Africa, at $133 billion or about 94% of the total. He did not specify asset classes.
Mr. du Toit warned delegates at the summit that, if they do not move fast, the opportunities might be gone or too expensive by the time they decide to invest.
One area that is experiencing a shift in the source of investment is the bond markets. Over the past 18 months, Kenya, the Ivory Coast, Senegal and Morocco have all sold paper.
“Certainly in the dollar issuance space there has been a marked change in the landscape,” said Grant Cullens, Johannesburg-based CEO at African Alliance Asset Management. “Whereas South Africa was traditionally the latest market for dollar-traded African debt with nearly 70% of the market in 2010, it had fallen to 31% by 2013, and, according to the most recent Dealogic data, is around only 10% this year.”
