Monday, July 19, 2010

Pension funds urged to enter Africa

By David Rowley - Financial Times - Published: June 13 2010

Fund managers have used the launch of the South African based World Cup to bemoan UK pension funds’ resistance to investing in the continent.

The £1.2bn (€1.4bn, $1.8bn) Royal County of Berkshire pension fund is believed to be the only UK pension fund to have made a strategic investment to the continent via a small investment with the Morgan Stanley Frontier Fund.

The Morgan Stanley fund has invested in companies based in Ghana, Namibia, Nigeria, Botswana and Tunisia.

According to the South African-based investment firm StanLib, the only other exposure the top 100 UK pension funds have to the continent is through incidental exposure to South African mining stocks.

Dylan Evans, director of global investment markets at StanLib said: ‘From my own experience in trying to market Africa to pension funds and consultants in the UK there isn’t always a huge amount of interest.

“This seems a lost opportunity as StanLib research shows that a basket of Africa ex-South Africa’s largest 30 stocks has well outperformed all developed markets and the MSCI Emerging Market Index since the beginning of the last global bull market in 2003.”

Nick Greenwood, pensions manager at the Berkshire fund, made his first investment with Morgan Stanley Frontier Fund in January 2008 and said: “I am a firm believer in the investment thesis for frontier markets.”

The £7bn West Midlands pension fund is also planning to invest in Africa through diversified frontier funds. Judy Saunders, chief investment officer at the fund, said investing in frontier markets would come with greater volatility, but offered the opportunity for higher returns.

This lack of pension fund involvement in Africa contrasts with the enthusiasm of leading fund managers.

Nick Price, portfolio manager with Fidelity International, said: “Africa is one of the least researched of the emerging market regions and so hides some of the best value opportunities for pioneering investors willing to do their homework.

“The continent is one of the few regions of the world to have avoided recession in 2009 and has emerged from the financial crisis relatively unscathed.”