Billions of shillings held in pension funds in Kenya and Africa's leading economies remain tied up in government securities, starving SMEs and infrastructure of vital growth capital, a new study shows. 

The report commissioned by FSD Africa, in partnership with the African Pension Supervisors Association (APSA) and the Pan-African Fund Managers’ Alliance warns that this skewed allocation limits investment in infrastructure, housing and SMEs, which provide the bulk of employment and economic activity across economies.

At the moment, Africa’s asset management industry has crossed $600 billion (KES77.4 trillion), but most of these finances remain locked in government securities across economies. 

Despite holding about $20 billion or KES2.58 trillion, pension and institutional funds in Kenya are still heavily skewed toward conservative assets in government paper.

"Substantial long-term capital, ranging from $17 billion in Nigeria to $390 billion in South Africa to $20 billion in Kenya most remains concentrated in government securities," stated the Landscape Report on Africa’s Institutional Capital Markets states in part.

The report seeks to examine why this skewed allocation of assets persists and what could change and it concludes by noting that closing the gap between the scale and impact of long-term savings is critical to financing Agenda 2063, which is the African Union’s 50-year blueprint for transforming the continent into a global powerhouse.

Institutional savings

The study established that across the continent, institutional savings are larger than often assumed, with assets under management in Collective Investment Schemes (CIS) ranging from $3 billion in Nigeria to $200 billion in South Africa.

Additionally, the report states that across economies, asset allocation remains highly conservative, with government bonds accounting for approximately 60–70% of pension fund portfolios. Of the markets surveyed, Ghana emerged highest with 90 per cent allocation in government securities, Nigeria (60 percent) and Kenya (50 percent).

What's more, "pension funds now form the backbone of domestic sovereign debt markets, supporting short-term stability but increasing long-term exposure to fiscal and inflation risks," the report adds.

At the same time, shallow capital markets and limited investable pipelines continue to constrain diversification, even where institutional appetite exists.

Commenting on the findings, Evans Osano, Chief Financial Markets Officer at FSD Africa, said: “This new report shows how unevenly pension and asset management markets have evolved across the continent, but it also indicates how significantly Africa’s institutional savings have grown overall as a pool of largely untapped long-term capital.

He added: "Mobilising domestic institutional pools of capital for Africa’s development priorities will require a concerted ‘business unusual’ approach. We need new asset classes, new partnerships, and new enablers.”

Tapologo Motshubi, Chair of PAFMA, added: “Progress will depend on sustained collaboration between fund managers, regulators, project sponsors and policymakers. PAFMA’s role is to provide a platform for that collaboration, helping align market practice, regulatory thinking and investment opportunities so that domestic institutional capital can play a larger role in Africa’s long-term development.”

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