Amos Ndung’u | Perspectives from FSDEA | 8th edition #PIAFRICA

How diversified is the KPPF investment portfolio and are you satisfied with your current
allocations to alternative asset classes?

KPPF’s investment portfolio is reasonably diversified within the private equity (PE) and
alternative asset classes, reflecting a balanced mix of different fund stages, sectors, and
geographies.

The portfolio consists of commitments across multiple funds, with a total allocation of $25 million
to private equity, representing 9% of the total AUM of $289 million. These investments span
different stages of maturity, ranging from early-stage investments to funds in the exit phase,
providing a diversified mix of risk profiles and investment horizons.

The Fund is also at the tail end of investing in two new private equity companies, which will
diversify the portfolio further. These investments are still in their initial stages, but early
indications suggest a strong potential for high returns.

What challenges in allocating to alternative asset classes will you seek to highlight at PI Africa
2025?

• Regulatory Constraints: Pension funds in Kenya are governed by strict regulations, including
  the Retirement Benefits Act (RBA). These regulations often restrict the types of alternative
  investments pension funds can make, such as private equity, real estate, or hedge funds. In
  some cases, pension funds must seek regulatory approval before making significant
  investments in alternative assets, which can be time-consuming and create bottlenecks.
• Liquidity Issues: Alternative assets, such as private equity, infrastructure, or real estate, tend
  to be more illiquid compared to traditional investments like stocks or bonds. Pension funds are
  generally focused on long-term growth, but the inability to quickly exit these assets or convert
  them to cash during times of financial stress can pose a risk. Many alternative investments
  require a commitment over several years, which means pension funds could face liquidity
  constraints if unexpected financial obligations arise.
• Lack of Expertise: Investing in alternative assets requires specialized knowledge and
  expertise. Pension funds in Kenya might face a skills gap in assessing, managing, and
  monitoring these types of investments. The lack of experienced professionals may lead to
  inefficient decision-making or the inability to fully assess risks.
• Risk Management: Alternative investments often have higher volatility and uncertainty
  compared to traditional asset classes. Pension funds are generally risk-averse, as they have
  a responsibility to provide stable retirement incomes. Therefore, allocating too heavily in
  alternative investments could expose them to greater risk than they are comfortable with.
• Valuation Challenges: Alternative investments, like private equity or real estate, lack
  transparency in pricing and performance reporting, which can make it difficult for pension
  funds to assess whether they are getting good value for money.
• High Transaction Costs: Alternative investments tend to have higher management fees,
  transaction costs, and sometimes, performance fees. Performing due diligence on alternative
  investments can be expensive and resource-intensive. Funds may need to engage third-party
  experts or consultants to assess opportunities, further increasing costs.

What are your expectations from the event?

• Exploring New Investment Opportunities: To engage in discussions about emerging asset
  classes and alternative investments that are gaining traction within the African market. The
  focus will be on understanding how these assets could enhance KPPF’s risk-return profile and
  align with long-term investment goals.
• Insights on Global Investment Trends: To gain insights into how global investment trends,
  such as Environmental, Social, and Governance (ESG) criteria and digital assets, are
  influencing the African pension fund market. The goal is to explore how these trends can be
  integrated into investment strategies.
• Understanding Regulatory Developments: To obtain clarity on the latest regulatory changes
  affecting pension funds in Africa, particularly concerning compliance with local laws, cross-
  border investments, and evolving taxation policies that may impact investment decisions.
• Adapting to Regulatory and Market Changes: To learn how pension funds in different African
  countries are responding to regulatory demands and evolving market conditions. The insights
  gained will help in improving investment strategies.
• Strategies for Navigating Market Cycles: To obtain strategies for protecting pension funds
  during market downturns or economic cycles, ensuring long-term stability and sustainable
  returns despite economic volatility.
• Benchmarking Investment Performance: To understand best practices for benchmarking
  investment performance, especially in alternative asset classes. This knowledge will help in
  measuring and assessing the Fund’s success in achieving its objectives.
• Incorporating Sustainable Investing: To explore how to incorporate sustainable investing
  principles into KPPF’s portfolios, aligning investment strategies with global trends in
  responsible investing while supporting local development goals in Africa.