Average allocation to Alternatives by African pension funds
“Alternatives” refers to a broad range of non-traditional asset classes, including infrastructure, real estate, private equity, private credit and venture capital. In most advanced markets, Alternatives represent between 10 and 20% of the total Assets Under Management (AUMs). In comparison, in Kenya (and, more broadly, Africa), less than 1% of AUMs are invested in Alternatives.
The investment case for Alternatives is strong. For investors, both institutional and retail, investing in Alternatives brings the benefit of investments with attractive risk-adjusted returns. Alternatives also enable investors to access investments in private markets (i.e. those not traded on exchanges), which tend to be significantly larger than public markets in young, growing economies like East Africa.
Risk-adjusted returns among asset classes (2012-22) (KKR)
Alternatives also represent an opportunity for investors to achieve greater diversification – reducing the risk of concentration in the limited number of traditional asset classes. They also tend to exhibit low correlation to equities and bonds, while also being less volatile.
Pension Funds’ allocation to infrastructure (2022/23)
Investment in Alternatives have long been seen as the specialisation of large, institutional investors who have had to lock-in their capital for years (even decades), with lumpy, back-ended returns that are exposed to macroeconomic and business cycle (timing) risks.
Our approach to product design is different. We have a preference for the listed investment trust model, which provides liquidity and exit avenues to investors from an early stage. All investors can determine their own investment holding period to meet their objectives, without locking in capital for extended periods. By listing the investment trusts on exchanges such as the Nairobi Securities Exchange (NSE), we also enable much wider investor participation, particularly among non-institutional segments.
Our product design integrates international best practices for corporate governance and reporting, with independent oversight and no conflicts-of-interest.
Detailed reporting of performance, at least quarterly
Independent experts on investment
committees
Advisory boards with investor representation
Independent valuation agents
At SAAM sustainability is not a buzzword, it is a paradigm!
Our decades of investment experience has conclusively proven that pursuit of financial returns is not in conflict with sustainability. In fact, when applied appropriately, sustainability can be a driver of long-term “alpha” and not merely a risk avoidance tool.
Many compelling sustainable investment opportunities in Africa are also the most attractive financially and our team’s unique perspective enables us to combine and optimise the financial and non-financial outcomes from our investments.
You can read more about our approach to sustainability here.
The most successful investment firms globally are those that find the right balance between individual judgement and robust investment processes.
At SAAM, we actively encourage our people to think creatively and seek value creation opportunities for our investors. We balance this with a disciplined investment process, wherein every investment proposal must go through a multi-stage analysis and review. Once approved, the same rigour continues through the documentation, portfolio management and exit stages of the investment lifecycle.
Even the best investors can’t know everything, all the time. Incorporating a broad range of opinions leads to better decision-making.
Calculated risk-taking is the essence of a great investor. Recording and then reviewing the reasons for accepting risks builds institutional memory.
Avoid knee-jerk response to events – even if they are perceived as positive. While deciding, always ask how it will impact our investors’ long-term interests.
Due process is even more critical when faced with unanticipated events or scenarios. A little “friction” is the cost worth paying to avoid the most unfavourable outcome.
Our first initiative, Spearhead Africa Infrastructure Fund, invests in senior debt of infrastructure and climate-related projects located in East Africa. Using the tried-and-tested model of a listed investment trust, SAIF enables a broad range of investors to access this unique asset class in an investor-friendly format.
