New disclosure rules in Bill spook private equity fundsSunday May 17 2020
Private equity and venture capital funds are seeking clarity on the proposal in the Finance Bill 2020 that will give the Capital markets Authority (CMA) regulatory powers over members who access public funds.
The firms, through lobby East Africa Private Equity and Venture Capital Association, said the Treasury proposal did not define what constitutes public funds, adding that there is a risk they may lose external investors who are not ready to undergo regulatory scrutiny on private funds.
“Unfortunately, the language in the Bill is not clear about what or who constitutes ‘public funds’ or on the kind of oversight to be applied. Protecting investors is critical, as is ensuring Kenya remains attractive to international and domestic capital,” executive director Eva Warigia told Business Daily.
“Further, the lack of specificity in the Bill is likely to discourage the very patient capital we need to develop our economy and business infrastructure in the post-Covid-19 world. Until we know the specifics, we cannot assess whether the oversight is appropriate, but the uncertainty at present is damaging.”
The move to have CMA oversight over the PEs and venture capital comes at a time when investing in these firms has been opened to pension funds, which include the State-owned National Social Security Fund.
At the end of last year, pension funds had invested Sh969.25 million in PE, representing a 12 percent growth from 2018 and accounting for 0.07 per cent of the total assets.
The investments have grown from Sh220 million in December 2016, the year when the regulations allowing pension funds to invest in private equity were put in place.
PE funds have also become an attractive source of capital for firms in the wake of uncertainty in the corporate bond market and difficulties in accessing debt financing from banks.
The funds seek to maximise returns for owners and investment partners in a relatively short window — most exit investments after seven to 10 years — and are, therefore, likelier to chance their hand at riskier ventures.
Consultancy KPMG in its analysis of the Finance Bill also called for more light on the nature of the proposed regulation, due to the international nature of the investors in PE funds who are private entities in their home markets.