Private Equity Investing for Pension Funds in East Africa

This market study, published in October 2019 by FSD Africa, EAVCA, and the IFC, examines the barriers and opportunities for pension funds in East Africa to invest in private equity. While regulatory frameworks in Kenya, Rwanda, Tanzania, and Uganda generally allow such investments, actual allocation remains low due to knowledge gaps, risk perceptions, and a strong preference for government bonds. The report recommends tailored capacity building for trustees and regulators to increase the adoption of private equity as a growth asset.

• Private equity is a legally recognized asset class for pension funds across the representative East African countries, with allowable limits ranging from 10% of assets under management (AUM) in Kenya to 20% in Rwanda. Tanzania requires Trustees to seek approval from the Bank of Tanzania rather than following a fixed percentage prescription.
• Despite regulatory allowances, actual allocation to private equity by pension funds is muted. In Kenya, the average allocation for the year ended 31 December 2018 was only 0.07%, while in Uganda it was 2.2%. Development finance institutions (DFIs) provide nearly 70% of the funds held by private equity firms in the region.
• Pension funds in East Africa exhibit a strong bias toward government bonds, driven by high effective real yields, regulatory guidelines allowing over 50% allocation to fixed income, and implicit capital guarantees. This conservatism often leads to an under-allocation of growth assets like private equity, even for schemes with young membership profiles that could support higher risk.
• There is a significant knowledge gap among pension fund trustees regarding the technical, commercial, and governance aspects of private equity. Survey results show low levels of understanding for key terms such as 'Limited Partner', 'General Partner', 'Carried Interest', and 'High Water Mark', as well as a lack of familiarity with the IPEV Valuation Guidelines.
• Private equity offers pension funds a way to access the 'real economy' and sectors under-represented on African stock exchanges. While stock exchanges are dominated by the financial sector, private equity transactions show higher activity in sectors such as Information Technology, Consumer Discretionary, and Telecoms.
• Local currency pension funds can provide critical 'patient capital' for unlisted companies, easing the pressure on General Partners and investee companies who otherwise struggle with the currency volatility and US dollar repayment expectations faced by international investors.
• General Partners in East Africa primarily utilize a 'growth equity' or 'expansionary capital' model, focusing on minority investments in mature companies. Value creation is driven predominantly by operational improvements rather than the use of leverage, which is minimally used due to the underdeveloped state of local debt capital markets.
• The report identifies a lack of industry-specific risk and return benchmarks for East Africa as a limiting factor for investors. While the Africa Private Equity & Venture Capital Index exists, data flow remains inefficient and submissions are intermittent.
• Environmental, Social, and Governance (ESG) policies are strongly adopted by East African private equity managers, likely due to the influence of early funding from development finance institutions (DFIs) that made ESG a precondition for capital.

APA

FSD Africa (2019). Private Equity Investing for Pension Funds in East Africa. https://fsdafrica.org/wp-content/uploads/2025/05/Market-Study-Report1.pdf

Chicago

FSD Africa. Private Equity Investing for Pension Funds in East Africa. 2019. https://fsdafrica.org/wp-content/uploads/2025/05/Market-Study-Report1.pdf.

Wikipedia

{{cite report |author=FSD Africa |title=Private Equity Investing for Pension Funds in East Africa |date=October 2019 |url=https://fsdafrica.org/wp-content/uploads/2025/05/Market-Study-Report1.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{fsdafrica2019private, author = {{FSD Africa}}, title = {{Private Equity Investing for Pension Funds in East Africa}}, institution = {FSD Africa}, year = {2019}, month = oct, url = {https://fsdafrica.org/wp-content/uploads/2025/05/Market-Study-Report1.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }