CEsA/ISEG Research Working Paper No. 205/2025 investigates the reasons behind the low level of investment by US pension funds in African entities

The CEsA/ISEG Research Working Paper No. 205/2025, entitled Obstacles to US Pension Fund Investment in Africa, seeks to identify the reasons behind the lack of investment in the Africa Finance Corporation (AFC), a multilateral financial institution

Despite its success in attracting capital from a diverse range of institutional investors, the AFC has not achieved the same outcome with US pension funds. This paper combines a case study of the AFC, consultations with senior professionals and experts, and a review of academic literature and industry reports, with the aim of identifying the reasons for the absence of investment in the AFC and, more broadly, the limited share of US pension fund investments in African entities.

The CEsA/ISEG Research Working Paper No. 205/2025, entitled Obstacles to US Pension Fund Investment in Africa, indicates institutional obstacles in the US pension fund investment ecosystem are mostly responsible for US pension funds forgoing investment in the AFC. More broadly, the research suggests inadequate returns, elevated risks, limited investment opportunities, and poor liquidity are impeding investment in Africa. The paper is authored by Daniel Preston, Professor at Indiana University Bloomington and a PhD student in Development Studies at ISEG.

Working Paper No. 205/2025 can be downloaded at the following link: https://cesa.rc.iseg.ulisboa.pt/wp-content/uploads/2025/10/Working-Paper-205_2025.pdf

Abstract:

The Africa Finance Corporation (AFC) has been unable to raise capital from US pension funds despite its success in attracting investment from a diverse range of institutional investors. This article combines a case study of the AFC, consultations with senior-level professionals and experts, and a review of academic literature and industry reports to identify the reasons for the lack of investment in the AFC and the overall small share of investments in African entities by US pension funds. The research indicates institutional obstacles in the US pension fund investment ecosystem are mostly responsible for US pension funds forgoing investment in the AFC. More broadly, the research suggests inadequate returns, elevated risks, unsuitable investment characteristics, limited investment opportunities, higher costs, and poor liquidity are impeding investment in Africa. Efforts by development organizations and governments to accelerate capital market development, improve political and macroeconomic stability, and grow their capacity to deploy risk- sharing mechanisms could help increase US pension fund investment in Africa. US pension funds could benefit from reevaluating their investment policies, considering a larger allocation to fixed income investments abroad, and incentivizing investment consulting firms to build their capacity to provide investment advice for African markets.

About the author:

Daniel Preston is a Clinical Professor and Director of the Master of International Affairs programme at the Paul H. O’Neill School of Public and Environmental Affairs, Indiana University Bloomington. He is also pursuing a PhD in Development Studies at ISEG.

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Author: CEsA Communication Team (comunicacao@cesa.iseg.ulisboa.pt)
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