Capital markets watchdog to craft pensions’ PE investing rules

The Capital Markets Authority (CMA) expects to finalise the regulations on licensing of private equity funds by the end of the year, paving the way for pension schemes to invest freely in the sector.

In the budget speech for the 2015/16 fiscal year Treasury CS Henry Rotich introduced new regulations expanding pension scheme asset classes by allowing them to invest up to 10 per cent of their assets in private equity funds and venture capital funds as licensed by the CMA.

Edward Odundo, the Retirement Benefits Authority chief executive, said last week that the pensions’ regulator had already co-opted the PE segment as a fully-fledged investment class for the industry players, with the CMA licensing of funds the only remaining aspect.

Acting chief executive officer Paul Muthaura Thursday said CMA can put out a draft of the licensing regulations by the end of 2016, but not in the fiscal year ending June due to the length of the process of approval of regulations.

“We have been working with private equity players in Kenya, the Eastern Africa Venture Capital Association and RBA to put together the registration framework. It is still however under development and not yet finalised,” said Mr Muthaura.

“We will decide whether it will be operationalised as a policy guidance note under our principles-based approval powers under Section 12 of the CMA Act or as a gazetted guideline or regulation.”

Until last year, private equity investment was carried under the other assets category with a limit of 10 per cent of total assets and, the schemes were required to get a ‘no objection’ approval from the RBA when investing in this class.

The private equity space in Kenya and the East Africa region as a whole has been growing at a brisk pace as the region continues to outperform the rest of sub-Saharan Africa in average economic growth.

The sector is likely to grow faster if it is able to attract the investments from pension funds, which are characterised by long-term outlook and backed by an asset base that is projected to hit Sh1 trillion this year (thus a potential Sh100 billion war chest under the 10 per cent limit).

In their 2016 private equity outlook, Cytonn Investments said that the abundance of global capital looking for opportunities in Africa is a key driver for the PE investment class, with the key focus sectors being financial services, healthcare, education and ICT.