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Africa’s Institutions: A Vast Untapped Resource

While private capital is a critical engine of growth, Africa still suffers from a major private capital gap: $5 billion of private capital deployed in 2025 was dwarfed by the continent’s unmet SME financing need of about $330 billion and an annual infrastructure financing gap of approximately $100 billion.

Africa’s private capital industry remains heavily dependent on DFI and foreign capital, which consistently accounted for more than 75% of Africa’s private capital LP fundraising commitments between 2022 and 2025. Development finance institutions (DFIs) were the single largest LP source for African private capital funds, accounting for 51% of private capital fundraising commitments in this period, while foreign commercial LPs—pension funds, sovereign wealth funds, fund-of-funds, and corporates—accounted for approximately 32%. Behind this, local African investors contributed only 17%.

However, Africa’s foreign capital channels are facing increasing strain. Although absolute private capital fundraising from DFIs has been resilient, increasing by 17% a year between 2022 and 2025 amid global fundraising headwinds, future DFI fundraising is expected to be challenged. Some major donor countries, such as the US, UK, France and Germany, are cutting ODA: countries in Sub-Saharan Africa are facing a 16-28% decline in ODA funding between 2025 and 2027.

The solution to this funding challenge may be found on Africa's own balance sheet. Africa's domestic capital base totaled about $4 trillion in 2025, of which roughly $0.9 trillion was represented by institutional capital in pension funds and insurance companies. These pools possess the duration and local currency profile that matches alternative investment strategies, as well as offering potential for strong risk-adjusted returns and greater diversification. Further, Africa’s institutional capital faces a growing need for its managers to seek alternative, effective places to invest on behalf of their beneficiaries. It compounded at 8% a year between 2018 and 2025, with pension assets increasing from ~$330 billion to ~$550 billion, and insurance assets growing from ~$200 billion to $360 billion.14 This growth was fastest outside South Africa: institutional assets compounded at 25% per year in Ghana, 18% in Egypt, 17% in Nigeria and 13% in Kenya over the same period.

A 1% reallocation of institutional AUM to private capital would represent more than triple the current annual value of private capital fundraising in Africa

A 1% reallocation of regional institutional AUM—though only representing a stock value and therefore a one-off redeployment to alternatives—would still equal more than a 3.5x increase in current latest annual private capital activity fundraising in Africa.

Africa Is Underweight in Alternatives

The continent’s institutional capital is dominated by allocations to government securities, occasionally exceeding 50% of pension and insurance portfolios, with <2% allocated towards alternatives. This stands in stark contrast to developed markets, such as North America, where pension funds allocate approximately 20-25% of AUM to alternatives.

Government securities remain a conservative demand across geographies, with allocation increasing even further in several countries

Institutional allocation patterns vary across Africa but converge on a common private capital gap. South Africa is the most diversified—pension funds hold significant public equity exposure via the Johannesburg Stock Exchange and insurers allocate heavily to collective investment schemes—yet alternatives remain at ~2% of AUM. East Africa is more sovereign-concentrated, with Kenyan alternatives below 1% and Tanzanian government debt allocations still rising. West Africa is divergent: Nigeria has gradually diversified into listed equities and corporate credit, while Ghana is heavily concentrated in sovereign debt. North Africa is bifurcated between Morocco's shift toward equities and alternatives and Egypt's continued government securities concentration.

In nearly every African market, the formal regulatory ceiling on alternatives is well above the actual allocation, as illustrated by pension fund allocations: South Africa's 0.8% private equity deployment against a 15% ceiling; Nigeria's 1.7% private equity allocation against a 10% ceiling; Kenya’s 0.7% allocation against a 10% ceiling for private equity and venture capital; and Ghana’s 1.1% allocation against a 25% ceiling for alternative investments.

The mismatch between formal headroom and actual allocation is the central aspect that the rest of this report seeks to explain.

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Critical Barriers to Mobilization

The barriers can be grouped under the three actors whose decisions and constraints shape the system: alternative asset managers, institutional investors, and the policymakers that determine whether and how the first two can transact.

Allocation of Africa's institutional capital is limited by constraints across alternative asset managers, institutional investors, and policymakers
Alternative Asset Managers
The relatively weak returns of African alternative investment managers as a whole, amid headwinds including currency volatility, inflation and political instability, simply have not given trustees a compelling reason to take additional risk when compared with local currency sovereign yields or other public, more liquid assets. Local currency returns of 15-20%+ in Egypt, Ghana, and Nigeria and 10-18% in Kenya and South Africa often offer both higher returns and lower risks. The funds with proven track records are more likely to be domiciled offshore and in hard currencies, creating misalignment with the regulatory requirements of institutional investors and downsides of FX exposure. Such funds were built this way for sound reasons, aligning with the needs of global LPs, particularly DFIs, which have anchored the African private capital industry for two decades.

In contrast, the managers most accessible to local institutional investors—especially in Africa’s smaller economies—are predominantly first-time, single-country, local-currency funds with smaller deal pipelines, less diversified portfolios, narrower talent pools to select from, and typically therefore a more limited performance track record.
Institutional Investors
Pension fund boards in most African markets are composed of trustees drawn from employee, employer, and government bodies, many of whom are not investment professionals. Trustees are personally accountable for the scheme's fiduciary responsibilities, so they often prioritize capital preservation ahead of returns, and the asymmetric reputational risk of an alternative allocation that underperforms is a powerful deterrent.

At the trustee level, boards are typically unfamiliar and uncomfortable with the methods and processes used for alternatives. These include NAV-based valuations and GP-supplied fair-value marks rather than observable market prices; the modelling of capital calls and uncertain exit timing against scheme liabilities; and quarterly NAV-based performance reporting with limited inter-fund comparability that makes it difficult to benchmark a manager, even after several years. At the investment manager level, many of the local-currency and single-country fund managers appointed by African pension schemes lack dedicated alternatives teams with the technical skills to properly evaluate the alternative investment opportunities that come their way.
Policymakers
The third set of barriers is the policymakers that determine whether managers and investors can efficiently transact with each other. On the institutional investor side, regulation often restricts the ability of institutional investors to invest in offshore investment vehicles, including those of established, pan-African alternative investment managers that typically domicile funds in specialist jurisdictions, such as Mauritius or Luxembourg. In addition, regulation makes it costly to structure and expatriate capital from locally-domiciled vehicles that could enable institutional investors to access alternative vehicles within the constraints on offshore deployment.

Five Priority Actions Can Break Down the Barriers

First and foremost, alternative investment managers need to more consistently deliver outsized returns and liquidity to increase institutional investors’ confidence in the asset class. This requires GP-level interventions across the deal cycle, such as disciplined entry valuations, hands-on portfolio value creation and rigorous exit planning. Alongside this, potentially greater selective use of asset level leveraged finance could also improve net returns. These levers transcend the mobilization of local institutional capital, and sit outside the scope of this report’s recommendations.

Beyond this, we propose five priority unlocks which require coordination between DFIs, GPs, institutional investors, regulators and industry bodies. This could have an outsized and lasting impact on mobilizing institutional capital for Africa’s private sector growth. Our proposals are shown below:

Mobilizing Africa's domestic Institutional capital requires five unlocks across three layers to drive greater institutional investment in alternatives
Layer 1: Build foundational transparency and capability
  • Establish and publish transparent African private capital performance data to enable institutional investors to make decisions based on facts.
  • Implement a continental, multi-year training curriculum to help pension fund trustees understand alternative investment opportunities and gain practical exposure to them.
Layer 2: Fix the regulatory architecture
  • Increase the attractiveness of local domiciliation through targeted tax, licensing, and exchange-control packages to help pan-African alternative fund managers access local institutional capital.
  • Provide regulatory permission for local institutional investors to invest in offshore-domiciled African alternative funds.
Layer 3: Scale proven transaction structures and facilities
  • Build a consolidated pan-African syndication platform to source, undertake due diligence, and deploy co-investments in innovative fund structures.
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Conclusion: From Allocation to Mobilization

Mobilizing Africa's domestic institutional capital is fundamentally an ecosystem problem: it requires regulators, DFIs, alternative asset managers, institutional investors, and industry associations to move in parallel, each addressing the frictions that only they can directly influence. The window of opportunity is open now: sovereign yields are decreasing, regulators are moving in a progressive direction, pension and insurance assets are growing, and institutional investors are looking for opportunities to diversify. Converting recommendations into coordinated action over the next 24 months can change the course of institutional capital allocation trends and inject momentum into Africa’s alternative investments industry.

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