BLOOMINGTON, Ind. - The potential for growth in Africa is massive, but external investment on the continent has been slow to develop, and donor countries need to do significantly more to improve policies to facilitate investment from the local to the supranational level to make a meaningful impact.
One option for such investment may lie in American pension funds. In an article published in the journal Global Policy, Daniel Preston, a clinical professor at the Paul H. O’Neill School of Public and Environmental Affairs, explored U.S. pension funds as a candidate for increased investment by framing it through an institutional lens and the scholarly understanding of the risk-return dynamics in private capital allocation. Drawing on insights from interviews with senior-level professionals who work in the U.S. pension fund ecosystem and experts at multilateral organizations, the article, “Policy approaches to increase external investment by US pension funds in African countries,” showcases four steps that can be taken to increase U.S. pension fund investment in African countries.
“The motivation for the research originated back in February 2020 at a forum in Paris where I was interacting with African organizations struggling to attract investment from the United States,” Preston said. “The pandemic provided an unexpected speed bump, but I ultimately was able to see it through.”
Preston suggests policymakers can transform guarantee programs in size, scope, and risk tolerance; establish large pass-through investment vehicles; focus resources to improve capital markets in African countries; and mandate development organizations to coordinate and proactively collaborate with firms in the U.S. investment ecosystem. By following these steps, policymakers can overcome the risk-return imbalance and misaligned investment characteristics.
The article is just one part of a larger series addressing the issue.
“This is the first in a three-part series of articles being published over the next six months to better inform organizations, businesses, and governments looking to attract U.S. pension fund investment in Africa,” Preston said. “As a clinical faculty member, the research supports the advisory work I do for development institutions around the globe and the courses I teach in Bloomington.”