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Consider Yourself a Fiduciary? Then It’s Time to Invest in Africa

This article was first published on ImpactAlpha. Read the original post here

Africa was home to half of the world’s 10 fastest growing economies last year. Institutional investors must begin to seriously consider Africa as an investment destination.

For starters, consider its growth, including its youth population. The average age on the continent is 19.5 years old. The continent’s labor force is expanding, in contrast to what is happening in much of the rest of the world. It is predicted to reach 1.1 billion people of working age by 2034.

While COVID-19 cut foreign direct investment by 16% from $47 billion in 2019 to $40 billion in 2020, the continent’s long-term investment prospects remain strong.

Investing in Africa can play a strategic role helping public pension funds cope with their current funding crises. It’s well-known that these asset owners are struggling to meet their obligations and that the consistently low interest rates of developed markets have become a source of frustration. Africa, on the other hand, is on track to be one of the 21st century’s major economic powerhouses, and investments in infrastructure and private equity have the potential to deliver outsized returns there. These investments also offer unique diversification advantages because Africa’s markets are not correlated with developed markets.

I was born in Ghana. Being from Africa, I have long been aware of the continent’s long-term growth story and the investment opportunities that accompany such growth. Casey Family Programs currently has five percent of its $2.8 billion in assets under management allocated to Africa, but most U.S. asset owners have less than 1 percent allocated to Africa.

Africa’s economic transformation and ever-increasing opportunities have not yet resonated with many institutional investors. Within the U.S., pension funds manage trillions of dollars, but they invest a miniscule amount of that capital in Africa.

Many U.S. investors hear “Africa” and still think risk. I understand the macroeconomic, political, and currency risks often associated with African markets can make them wary. However, Africa is full of investment opportunities, and investors can mitigate many of these risks by seeking help from unconventional partners.

Development banks and international development agencies have a variety of interventions—credit guarantees, concessional capital, transaction advisory funding, and more—that help protect investors from the risks associated with developing markets. By improving the risk-adjusted return profiles of investments in these markets, development agencies aim to crowd private capital into projects and funds that have the potential to create both financial returns and positive environmental and social impact.

Prosper Africa, a U.S. Government initiative to increase two-way trade and investment between the United States and Africa, is working with institutional investors to help them overcome their misperceptions of the continent’s risks and introduce them to the tools available to mitigate its real risks.

I participated in U.S.-Government supported investor delegations to various countries in Africa along with representatives from some of America’s largest pension funds, insurance companies, and endowments.

Going to Africa, seeing the reality of the continent and witnessing its opportunities firsthand, can have a tremendous impact on investors, especially those whose perceptions of Africa have been largely shaped by television, news media, and films. For many who accompanied me on these delegations, it was their first time on the continent, and they were impressed by the sophistication of the asset managers there. They began to see investment opportunities where they hadn’t seen them before.

These delegations highlight that capital, when put to work in the right conditions and with the right alignment of interests, can have transformative effects. Teaming up with our African counterparts can be a powerful tool to get capital where it’s needed while also generating strong returns.

U.S. pension funds are gaining exposure to investment opportunities with expected return rates that will allow them to meet their monthly retirement payouts both now and in the future. And with an increase in the amount of private equity investments coming into the continent, African companies can expand, creating jobs and enabling people across Africa to access better goods and services locally.

U.S. investors who are not looking at investing in Africa are at best limiting their opportunity and at worst failing to fulfill their duties as fiduciaries. Given what we know about Africa’s promising future—its fast-growing labor force, its rising middle class, and its thriving start-up ecosystem—if these fiduciaries aren’t truly considering Africa as an investment destination, can they truly consider themselves fiduciaries?

Joseph Boateng is the chief investment officer of Casey Family Programs, where he is responsible for managing the foundation’s $2.8 billion endowment. He is also a member of the NASP-MIDA Africa Institutional Investor Advisory Council that was created to facilitate U.S. institutional investors’ participation in Africa’s growing markets.

Read more interviews and stories featuring investors and business leaders in the Prosper Africa Blog