Across the world, a strong case has been made about the role and success of pension funds investing in local economies and businesses through private equity and venture capital funds.
At the core of pension fund investments is fiduciary duties to members- an evolving body of duties which have not been a barrier to impact investing and investments in local economies.
Positive environmental and social impact form part of the rationale for choosing investments that pension funds in mature markets believe will deliver financial value.
State and municipal pension systems in Canada and the United States, for example, manage massive retirement assets for public employees and are large investors in private equity.
California Public Employees’ Retirement System (CalPERS), one of the largest US public pension funds, has a long-standing and substantial allocation to private equity.
The UK pension industry has seen much debate around pension fund fiduciary responsibility extending beyond simple risk avoidance and financial returns. According to this view, true fiduciary duty involves balancing risk with positive, risk-adjusted impact and domestic development goals – a duty that can be powerfully fulfilled by investing in the very economy that pension members live and work in.
Insurance and pension funds in the UK continue to lean into this progressive mindset and approach to their fiduciary duty – in a recent announcement, 20 of the UK’s largest pension funds and insurance companies committing billions for affordable housing and scale-up financing for growing businesses – working with the UK Government and private equity industry to channel pension savings into key infrastructure and fast-growing businesses in key modern sectors.
Ghana Venture Capital Association (GVCA) has been advocating for the nation’s pension funds to better understand, diversify and make more significant allocations in private capital beyond their traditional reliance on government securities.
The Association argues this shift is essential for securing robust, long-term contributions to the nation’s pension pots, private sector-driven financial returns for pensioners, while simultaneously fuelling decent job creation and tax generation.
On the sidelines of a recent press briefing hosted by Africa Venture Capital Association and British International Investment’s GhISP programme, Ghana’s Venture Capital Association shared several examples of pioneering private equity investors that have already been making successful investments to private equity – allocating from pension funds into the real economy through expert fund managers specialising in the asset class.
CEO of Ghana Venture Capital Association, Madam Amma Gyampo, said: “In mature markets like the US, Canada, Egypt and South Africa, the case for pension fund investments in private sector development is well established. GVCA is advocating for more of our pension funds and fund managers to co-invest and partner with our members.
Stanbic Investment Management SIMS, Petra and Axis, for example, have set and are working towards specific targets for their investments in private equity.
Pension Funds and Fund Managers are encouraged to interact with GVCA and explore pension-grade co-investment opportunities with our SEC-licensed Members like Savannah Impact Advisory, Mirepa Capital Advisors, Cardinal Stone and Oasis Capital, among others. As an industry, we can do better than 0.3% allocation to alternatives.
By working together to channel a 5% portion of Ghana’s substantial pension capital ($100bn) into specialist private equity funds that invest in the financial growth and operational excellence of local private businesses, pension funds can help build resilient, innovative, well-run private companies.
These create salaried jobs, generate wealth and taxes for the country, all while potentially achieving diversified returns compared to over-concentrated holdings in government bonds.
There is no such thing as ‘risk-free’ and we are making progress – pensions understand they need to diversify in terms of asset class and currency.”
Unlocking Pension Capital: A Four-Pillar Strategy
To bridge the gap between pension fund assets and private capital markets, Africa Venture Capital Association (AVCA) and GVCA have been working closely with pension funds to address knowledge gaps, fiduciary, risk and investment concerns in the following ways:
- Market Data To build investor confidence, AVCA and GVCA continue to publish regular industry reports focused on improving access to consistent, credible data. By enhancing market transparency and fostering proactive engagement with established private equity fund managers (General Partners), pension funds will be better equipped to assess opportunities and make informed alternative allocation decisions aligned with their fiduciary duties.
- Institutional Capacity The associations continue to provide convening platforms for targeted dialogues and training to strengthen the level of understanding of the private equity asset class and build the expertise of pension funds. GVCA and Impact Investing Ghana have also been promoting pooled investment structures, which help funds to diversify risk and access larger deals.
- Risk Mitigation Recognising the conservative mandates of pension funds, the strategy emphasises the use of blended finance mechanisms. GVCA continues to promote and advocate for the introduction of mechanisms in the market such as first-loss capital from development finance and philanthropic foundations interested in innovative finance and blended capital stacks, as well as encouraging pension funds to enter co-investment partnerships with private equity fund managers in ways that are structured to reduce perceived risk and align with pension funds’ primary duty to protect members’ savings.
- Policy and Regulatory Reform GVCA continues to advocate for essential reforms and policies including the proposed amendments to the National Pensions Act (2008) where the Association is calling for pension funds to report directly to NPRA on their allocations to alternative assets and impact in terms of: Total Value of Pension Contributions, Total Jobs Created, Total PAYE, Total Corporate Taxes generated by pension funds’ investments. GVCA is also pushing for the passing of the Limited Partnerships Act. Limited Partnerships are the standard investment framework and vehicle for private equity fund domiciliation but this framework currently does not exist in Ghana. The industry is also advocating for streamlined licensing processes for fund managers, a distinct regulatory classification and reporting regime more closely aligned with the technical nature of private equity funds, and some liberalisation and clarification on rules for offshore investments. These changes are deemed essential to align Ghana’s private equity industry and investment framework with global and regional best practices in established jurisdictions.
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