Unlocking the potential of pension funds for private equity investment in East Africa: a data-driven analysis of allocation trends and strategies

Abstract

This study critically examines the under-allocation of pension funds to private equity in East Africa, a region with a growing private sector and underdeveloped stock markets. It explores the potential of private equity to enhance portfolio diversification, mitigate foreign exchange risks, and provide stable returns in volatile markets. The research also assesses the strategic role of fund-of-funds models in optimizing portfolio performance and facilitating private equity exits. A mixed-methods approach is employed, combining quantitative analysis of secondary data from Preqin, Bloomberg and regional financial institutions with primary data from surveys of pension fund managers and private equity firms. The findings highlight disparities in private equity allocations across the region, driven by regulatory constraints, market maturity and risk perceptions. The study recommends increasing private equity allocations through strategic reforms and multi-pillar pension systems to improve financial performance and ensure long-term sustainability, contributing to East Africa’s economic development.