Private equity's development in East Africa hampered by a "mismatch in perception"

Sep 05, 2014

The lack of understanding of private equity (PE) has held it back ever since its inception in East Africa twenty years ago, according to an investigation from Kenyan newspaper The Star.

The lack of understanding of private equity (PE) has held it back ever since its inception in East Africa twenty years ago, according to an investigation from Kenyan newspaper The Star.

"There is a bit of a mismatch in perception", Nonnie Wanjihia, Executive Director of East African Venture Capital Association, told the news source.

"People think private equity managers are vultures but that's not the case at all. The whole point of PE is that it's a fantastic source of finance, a way of networking in a region, with firms able to take advantage of the expertise of managers," he added.

The newspaper highlights several problems hampering the development of private equity in the region, in particular persuading East Africa's relatively conservative pension funds to part with cash in the name of venture capital.


"Does private equity make sense for our clients?", writes Peter Anderson, CIO at Old Mutual Investment Group Kenya, in a
joint MFW4A/EMPEA/Commonwealth Secretariat publication published in August.


"It does in that we obviously need to diversify our portfolios and hold a greater number of lower or uncorrelated assets. However, there's a bit of an educational hurdle," he said.

A lack of appropriate regulation is also to blame for PE's lack of popularity. Kenya's RBA, which regulates pension funds, is not yet
distinguishing
PE funds from
other assets, including derivatives.

Pension funds including KPLC have called for the
freedom to invest larger amounts
in PE than the current 10 per cent cap allows, and Wanjihia recommends that regulators consider the Nigerian model where local pension funds are mandated to commit five per cent.

The Star concludes that another solution to boost PE in East Africa is to use the experience of development finance institutions (DFIs) to co-invest with pension funds.ADNFCR-2976-ID-801746828-ADNFCR