Africa’s mutual fund industry should see assets surpass the $1tn milestone by the end of 2020 as rising prosperity boosts demand for pensions and life insurance products, according to PwC, the auditor. But the development of an asset management sector fit for Africa’s needs in the twenty-first century remains a daunting challenge. It warns that poor infrastructure and liquidity in many stock markets could hamper the development of mutual funds across the continent.
Ilse French, Africa asset management leader at PwC, said: “Although the fund industry in Africa is, in most countries, still developing and has much to prove, global and local asset managers are likely to become more active as a savings and investment culture becomes more established.”
PwC forecasts mutual fund assets across 12 African countries to rise 73 per cent to just under $1.1tn by the end of 2020, from $634bn in 2014.
Hendrik du Toit, chief executive of Investec Asset Management, the South African fund house, said there was an urgent need to mobilise more local savings that could then be augmented by external capital to boost cross-border investment flows in Africa.
Speaking in London last week at the inaugural Fund Forum Africa conference, he said it was necessary to expose those African states where corruption was endemic and to deny capital to those countries where investors had bad experiences.
Africa had moved beyond “the stereotypical image of a hopeless continent”, said Mr du Toit, and is now embarked on a phase of real business development.
But he cautioned against over-optimism. “Africa is not [the next] China or even India. We cannot base comparisons just on population numbers. Investors have to scale their ambitions realistically,” he said.
PwC highlighted growth in pension fund assets and changes to regulations, which allow greater freedom in asset allocation decisions, as a potentially important driver of investment flows.
South Africa’s $322bn pension fund sector has experienced significant consolidation, shrinking from around 19,000 funds in the 1980s to around 3,000 currently, creating larger asset pools. Changes in regulations now allow 30 per cent of pension fund assets to be invested outside South Africa.
Mothobi Seseli, co-founder and chief executive of Argon Asset Management, said it was likely that there would be further changes to the rules for pension funds, allowing greater investment freedom.
South Africa’s $160bn Government Employees Pension Fund (GEPF) is Africa’s largest. It has more than 1.2m active members. The new rules will allow it to make allocations across the rest of Africa and to start investing in private equity and infrastructure.
These changes should in time help to deepen capital markets across Africa, said Mr Seseli, with other funds likely to look for co-investment opportunities alongside the GEPF.
Jenni Chamberlain, chief executive of Altree Capital, a veteran Africa investor, added that asset managers were becoming more aware of African growth opportunities but that there was a risk of disappointment for investors looking for easy money.
“What Africa really needs is investors with longer-term horizons and more patient capital,” she said.
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