•PE funds have been known to invest in sectors such as health, sustainable energy, education and consumer, retail sectors.
•The bulk of private equity funds is sourced from development finance institutions, which account for almost 70 per cent of funds held by private equity firms.
Private Equity funds want the Capital Gains Tax retained at five per cent and not the 12 per cent proposed in the Finance Bill 2019, to bost investment
The East African Venture Capital Association (EAVCA) said a punitive tax regime will putt off investors yet this is critical in attaining the Big Four Agenda.
“PE funds are key in supporting investments in the country. We need to make Kenya an attractive investment destination,” said Eva Warigia, executive director- EAVCA said yesterday.
Treasury has proposed an increase on CGT to 12 per cent to raise more revenue from investors, who widely make high returns upon exits.
PEs have received the backing of the Capital Markets Authority(CMA) which has affirmed its commitment in creating an enabling environment for PE funds, including safeguarding capital gains when they exit various ventures.
“As a regulator we supported the PE sector in retaining the capital gains tax at five per cent for PE exits,” CMA regulatory policy and strategy director Luke Ombara said yesterday, during launch of the ‘Private Equity Investment Guide'.
“An increase in capital gains tax from five per cent to 12 per cent as proposed by the Finance Bill would create uncertainty in the tax policy environment affecting middle to longer term PE investment appetite in the country,” Ombara said.
This comes even as Private Equity funds remain keen on tapping more wealth from regional pension schemes as they seek to diversify their investment portfolios.
Allocations by pension schemes account for a paltry 0.08 per cent of the total industry assets under management, EAVCA latest market report (October 2019), launched yesterday, reveals.
A total sample size of 426 Kenyan pension schemes, representative of a total value of Sh813 billion, 106 schemes (25%) were reported to have assets values of Sh2.07 billion.
Pension regulator-Retirements Benefits Authority (RBA) notes that though the country has had regulations that provide for diversification of Pension Funds, away from traditional instruments, most pension schemes are still predominantly bond and stock investors.
Yesterday, EAVCA in partnership with Financial Sector Deepening Africa (FSD Africa) and International Finance Corporation (IFC) unveiled the investment guide to enable regional pension schemes to invest in Private Equity Funds.
“The guide will be important in bridging the existing knowledge gap by trustees on investing in Private Equity whose uptake has been very low in the pension scheme investment portfolio,” Retirement Benefits Authority CEO Nzomo Mutuku said during the launch in Nairobi.
“As a regulator we are positive and open to new ideas in broadening pension growth and continue to review the legal framework to keep pace with emerging trends and expand the investment horizon for Pension funds,” Mutuku added.
Across developed markets, the pension industry is the backbone of investments supporting asset classes such as Private Equity with the patient capital to deploy in growing businesses.
“Private equity is a catalyst that enables pension funds to access growth opportunities in the unlisted African companies,” Warigia said.
FSD-Africa’s director of financial markets, Evans Osano, said: “There is a need to up skill regulators, fund managers and pension trustees to foster a greater understanding of the benefits, risks, and process of investing in PE funds.”