Royal Berkshire looks to expand Africa investment
The Royal County of Berkshire Pension Fund is looking to build on its African investments, as more pension schemes look to the continent to diversify their asset allocation.
The scheme accesses these markets through an African private equity fund of funds and an infrastructure fund, a move highlighted by PW in 2010.
In the face of slow emerging market growth, some investors have turned to frontier markets such as Africa for less correlated returns.
Nick Greenwood, pension scheme manager at Royal Berkshire, said: “The correlation between developed and emerging is so high now that the old argument of emerging markets as diversifiers does not hold.
“We have been investing in Africa and other frontier markets for five years now, and this year those investments have performed well again compared to other markets.”
He added the fund was looking to make further Africa-specific investments in the near future.
Mark Livingston, investment director of emerging markets at Fidelity, said growth figures in key African markets speak for themselves (see below).
He said: “It is said that frontier markets have underperformed, but Africa has overperformed. Kenya has one-year growth of 65 per cent, though there is high volatility and high inflation.”
These comments follow poor performance of the MSCI Frontier Markets Index, which saw -5.8 per cent annualised returns over the past five years, with 19.3 per cent volatility, according to Morningstar.
Livingston added: “You might look at the MSCI index, and think this is a bad idea, but specific markets give a different picture. Pension funds are doing a disservice to themselves and missing out by not investing in Africa.”
Stuart White, head of institutional sales at HSBC Global Asset Management, said: “We are certainly seeing an increase in interest in investing in Africa, with more and more enquiries from institutional investors, but there is an education process to go through with trustees.”
Brian Henderson, a partner in consultancy Mercer’s investment business, said frontier markets provided access to “genuine developing economies”, but warned: “There are significant macro-level political risks – and associated volatility – as well as liquidity risks.”