Pension funds have been asked to embrace private equity (PE) as an alternative investment.
Investments by pension funds in PE account for only 0.08 per cent of the total industry assets under management.
Retirement Benefits Authority Chief Executive Nzomo Mutuku urged funds to diversify from traditional instruments such as bonds and stocks.
He was speaking yesterday during the launch of an investment guide that will enable regional pension schemes to invest in PE funds.
"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," said Mr Mutuku.
The guide, dubbed Private Equity Investment Guide was launched through a partnership among the East African Venture Capital Association (EAVCA), Financial Sector Deepening Africa and International Finance Corporation.
"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,” said Mutuku.
Capital Markets Authority Regulatory Policy and Strategy Director Luke Ombara said regulators had focused on 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. 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," he said.
EAVCA Executive Director Eva Warigia said the pension industry is the backbone of investments in developed markets, supporting asset classes such as private equity with the patient capital to deploy in growing businesses.