Kenya, a popular investment destination for private equity (PE) firms, has proposed measures to make the operations of PE firms and venture capitalists more transparent by bringing them under the scrutiny of the Capital Markets Authority (CMA).
The plan is already causing disquiet among PE firms whose fund raising and choice of companies to invest in is often shrouded in secrecy.
The measures were announced by the National Treasury Cabinet Secretary Ukur Yatani in his 2020/2021 Budget Statement. He proposed the amendment of the CMA Act to subject PE firms and venture capitalists that mobilise resources from public funds particularly pension schemes to CMA regulation.
If the amendment is passed by Parliament, CMA will have the powers to scrutinise the books of firms that have attracted resources from public funds considering that pension schemes investments in PE firms has been on a growth trajectory in recent years. Kenya has allowed PE firms to fund raise from pension schemes after amending the Retirements Benefits Authority (RBA) Act allowing schemes to invest up to 10 per cent of their assets in the firms.
The firms through their lobby group, the East Africa Private Equity and Venture Capital Association (EAVCA), are opposed to the proposal to be regulated by the CMA on the basis that it will amount to "overregulation" given that pension schemes are regulated by the RBA. "If the proposal is passed PE firms will not have the incentive to raise funds locally from pension schemes," said Eva Warigia, EAVCA executive director.
In Kenya, pension funds invested 48.9 million in PE firms representing a 12 per cent growth from 2018. However, this is a drop in the ocean because the amount accounted for 0.07 per cent of total assets of pension schemes, which currently stand at $12 billion.
A report by audit firm KPMG and EAVCA show that of the total global PE funds raised globally amounting to $6.4 trillion between 2007 and 2018, approximately $33.1 billion was earmarked for Africa with $3.3 billion coming to East Africa.
In 2017 and 2018, PE firms invested $1.4 billion across 84 deals in East Africa with $1.2 billion invested in Kenya. Of the 84 deals, Kenya dominates with 61 then Uganda second and Ethiopia third.