A recent analysis by the African Private Capital Association (AVCA) reveals that Ghana’s pension funds have the potential to channel up to $1 billion into private capital investments. Despite a notable surge in asset growth, the sector continues to face limitations stemming from regulatory restrictions, structural inefficiencies, and a conservative investment mindset.
From 2020 to 2024, Ghana’s pension fund assets expanded significantly, rising from GH₵33.5 billion to GH₵86.4 billion. However, this growth has not translated into a broadening of investment portfolios. In 2020, government-issued securities accounted for 64% of pension fund allocations, increasing to nearly 73% by 2024. Conversely, alternative asset classes saw only a slight uptick, moving from 0% to just 1.1% during the same timeframe.
These trends persist despite regulatory initiatives aimed at promoting greater pension fund participation in private capital markets.
Ghana’s experience mirrors broader continental patterns. For instance, South Africa-the continent’s largest pension market-allocated a mere 0.8% of pension assets to private equity in 2023. Similarly, Kenya and Nigeria reported allocations of 0.7% and 1.7%, respectively.
Nonetheless, Ghana’s current utilisation rate of 4.4% suggests untapped potential, especially when compared to Kenya’s 7.0% and South Africa’s 4.7%, even though these countries operate under less stringent regulatory ceilings.
There is a promising shift underway. Among fund managers surveyed by AVCA, 24% initiated private capital investments between 2015 and 2019, with an additional 28% starting between 2020 and 2024. The outlook is optimistic, as 33% of respondents are actively seeking their inaugural private capital investments, while only 10% are not pursuing such opportunities.
Key obstacles to expanding private capital investments include currency instability and limited transparency in data. Ghana’s currency, the cedi, has depreciated significantly against the US dollar in recent years, with an annual depreciation rate exceeding 19% between 2022 and 2024. This volatility has led 63% of surveyed fund managers to adopt a cautious stance.
Moreover, 58% of respondents highlighted the lack of clear, comprehensive data as a major impediment. The report emphasizes that Ghana’s private capital market suffers from inconsistent reporting standards, scarce performance benchmarks, and inadequate transparency at the fund level, all of which hinder thorough due diligence and risk evaluation.
Additional challenges include a fragile exit environment and political uncertainties. Interestingly, despite policies designed to boost pension fund involvement in private capital, nearly half (47%) of participants identified regulatory hurdles as a significant barrier. Complex licensing procedures for private capital fund managers restrict investment avenues, and 32% pointed out the absence of limited partnership structures as a regulatory shortcoming.
Another critical issue is the shortage of internal expertise necessary for assessing and managing private capital investments effectively.
Investment decisions are increasingly influenced by social impact considerations, with Ghanaian pension managers prioritizing sectors aligned with the country’s long-term development goals. Healthcare leads the list, with 55% of respondents including it among their top three sectors, followed by agribusiness (45%) and technology (40%).
This sectoral focus resonates with trends across the region. For example, Nigerian investors show strong interest in infrastructure, agribusiness, and healthcare sectors.
Partnerships also play a crucial role in investment strategies. Nearly 80% of fund managers have preferred co-investors, with over a quarter favoring funds supported by development finance institutions (DFIs). DFIs are valued for their ability to mitigate risks and enhance credibility in blended finance deals. Additionally, 22% prefer collaborating with other fund managers to share due diligence responsibilities and align investment strategies.
Regarding fund structures, 39% of Ghanaian pension fund managers favor the conventional General Partner-Limited Partner (GP-LP) model prevalent in global private equity. However, current legislation does not formally recognize limited partnerships, limiting the adoption of this structure.
As pension funds gradually increase their exposure to private capital, fund managers face heightened scrutiny. Experience and proven track records have become paramount in decision-making. Nearly half of respondents prefer general partners who have successfully raised four or more funds, associating this with greater risk management capabilities and consistent returns.
While there is some openness to emerging managers, it remains cautious. Approximately 41% are willing to support managers with one to three funds under their belt, but only 17% have invested in first-time funds over the past five years. This contrasts with Nigeria, where 40% of respondents have backed new managers, indicating Ghana’s more conservative investment climate.
Ultimately, track record stands out as the most influential factor in investment choices, cited by 72% of respondents, followed by the strength of relationships within the GP team at 50%.