Africa’s growing pension assets yet to unlock private market investment

Domestic institutional capital across Africa has expanded over the past decade, driven by growing pension funds, insurance balance sheets, and public investment vehicles, but allocations into private markets remain limited, according to a new report by Stears and the African Private Equity and Venture Capital Association (PEVCA).

The report shows that while pension systems in countries such as Nigeria, Kenya, and South Africa have scaled up, capital has not moved proportionately into private equity, venture capital, infrastructure, or private credit.

“African institutional capital pools have expanded steadily over the past decade,” the report stated, noting that private capital markets have also developed with more fund managers, clearer sector focus, and a broader deal pipeline.

However, it added that allocation from domestic institutions into private equity and venture capital has followed, but at a much slower pace, remaining small relative to total assets under management.

The report found that regulatory changes have increased the room for pension funds to invest in private markets, particularly in Nigeria, where limits on private equity exposure have been raised.

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“These adjustments create more room within portfolios and signal regulatory acceptance of private markets as part of long-term asset allocation,” it said.

Despite this, actual allocations remain below regulatory ceilings.

“Higher limits have not translated into proportional increases in allocation,” the report noted, adding that “regulatory headroom, on its own, does not determine allocation outcomes.”

The report identified a structural gap between how private capital funds are designed and how domestic institutional investors allocate capital.

Most African private equity and venture capital funds are structured around offshore investors, with dollar-denominated vehicles, large minimum ticket sizes, and return expectations aligned with global markets.

“This is why, for example, most funds are dollar-denominated, with relatively large minimum tickets and reporting standards that mirror international norms,” the report said.

In contrast, domestic institutions such as pension funds and insurers operate within local regulatory systems, with liabilities denominated in local currency and investment processes shaped by internal governance rules.

“The two systems did not really come together as they developed,” the report stated, adding that the differences are structural.

Currency risk and liquidity constraints limit participation

The PEVCA report disclosed that currency mismatch emerged as a key constraint. Many funds are dollar-denominated, while institutional investors hold liabilities in local currency.

“A fund can look compelling on its own and still fall away once the currency exposure is considered at the portfolio level,” the report said.

The report also highlighted liquidity constraints. Pension funds must balance long-term investments with near-term payout obligations, limiting their ability to commit capital to illiquid assets with uncertain exit timelines.

“The difficulty arises when capital is locked in without clear visibility into when and how it will come back,” it stated.

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Even when regulatory and structural barriers are addressed, internal governance processes and portfolio limits continue to restrict allocations.

The report noted that pension funds typically operate within capped allocations to private equity, often between 5 and 10 percent, which constrains how much can be deployed.

“A $10-$20 million minimum commitment may be standard for global investors, but for many African LPs, it is simply too large relative to their asset base,” the report said.

In addition, investment committees require track records, clear benchmarks, and transparent reporting, which private markets do not always provide in comparable terms.

Capital flows first into income-generating assets.

The report shows that domestic capital tends to flow first into asset classes that align more closely with institutional needs, including infrastructure and private credit.

“Local-currency private credit and infrastructure funds gained traction earlier because their cash flow profiles are easier to manage,” it said.

Examples include Nigeria’s FCMB-TLG Private Debt Fund and Ghana’s Growth Investment Partners, which are structured to generate predictable income rather than relying solely on exits.

Venture capital and early-stage equity remain less attractive due to longer timelines and uncertain returns.

“Interest may be there, but getting from interest to allocation is less straightforward,” the report stated.

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Conditions for unlocking domestic capital

The report concluded that capital does not move based on availability alone but on whether investments fit within institutional portfolios.

“Capital does not move just because it is there. It moves when it fits within how LPs actually invest,” it said.

It identified structural fit, regulatory compliance, and portfolio alignment as primary conditions for allocation, while factors such as performance and exits play a secondary role.

“Allocation is less about how many positive factors are present and more about how a smaller set of conditions come together,” the report noted.

The report added that when these conditions are met, capital begins to flow, but when they are not, interest has a way of remaining where it is, recognised, discussed, but not deployed.