African capital is ready, but African regulation is not
Author: Gregory Norris, Corporate Finance Specialist
Here’s a story for today.
Back in 2023, around this time of the year in fact, a pension fund in Nairobi began the internal process of seeking approval to allocate a portion of its assets to a regional venture capital fund. The fund manager was experienced, backed by a credible track record and a coherent strategy. When she discussed her ideas, everyone agreed it was a good move. Promises were made and people in positions of influence —yes, that’s the polite term for the big fish— agreed to do their bit. Three years later…. nothing.
To be clear, nobody said no. It is simply that nobody felt they had the competence to say yes. The result is limbo, grey areas, waiting, hoping. The result, in practical terms, is NO.
Hers is not an exceptional story. Across the continent, institutional investors who have made the intellectual case for venture capital are discovering that the regulatory infrastructure surrounding them was designed for a completely different world. One where the only acceptable destination for pension money was a government security, and risk was something that happened to other people’s portfolios.
Let me be cleear again: the rules were not written in bad faith. When most African central banks and securities regulators took their current shape in the 1980s and 1990s —usually under structural adjustment programmes and the supervision of international financial institutions— the priorities were stability, foreign exchange management and keeping fragile banking systems solvent. Venture capital was not part of the conversation. Neither was private equity, cross-border fund investment or any of the structures through which institutional capital now moves into early-stage companies.
The architecture that emerged reflected those priorities. Pension funds were directed toward government securities, often by explicit mandate. In several countries, regulations required that 70%, 80%, sometimes more of pension assets remain in sovereign debt instruments. The rationale was prudence. The effect was to guarantee governments a captive source of financing while insulating pension boards from any pressure to think harder about returns.
For decades, the arrangement held. Governments borrowed cheaply. Pension funds collected modest yields. Nobody asked too loudly whether this was actually serving the people whose retirement savings were at stake. Firms like Brentford Capital, working with African high-net-worth individuals and institutional clients to grow, protect and structure wealth, understood early that the regulatory environment was not neutral — it was actively shaping where capital could and could not go, often in ways that had nothing to do with sound investment practice.
The discomfort began when inflation rose, sovereign debt loads became harder to ignore and a generation of younger financial executives started asking why their portfolios looked the way they did. The answer, when examined carefully, was not risk management. It was path dependency. The rules said government securities, so government securities it was.
The rules have overstayed their welcome
Changing them has proved considerably harder than diagnosing the problem.
A pension fund in Accra or Nairobi that wants to allocate to a venture capital fund today faces a thicket of regulatory questions that the relevant authorities are frequently unprepared to answer. Is the fund a recognised asset class under the existing investment mandate? If it is domiciled abroad, does the allocation constitute a foreign investment and trigger separate approval processes? Who supervises the fund manager? What reporting standards apply? How is the position valued for the purposes of the pension fund’s quarterly returns?
None of these questions are unreasonable. In a mature market, they would have clear answers. In most African regulatory environments, they do not. The result is not a wall. It is a maze. Compliance officers at pension funds, trained to avoid anything that might later attract regulatory scrutiny, default to the safest interpretation of ambiguous rules. The safest interpretation is almost always to stay in treasury bills.
The damage accumulates steadily over time. No single ruling kills a deal. No single regulator issues a blanket prohibition. Instead, timelines stretch. Legal costs rise. Fund structures become increasingly elaborate as managers try to satisfy rules that were never written with them in mind. Institutional investors who began the process with genuine conviction find themselves exhausted by procedure, and file the idea away for another year.
Some countries have begun to move. Rwanda has made deliberate efforts to position Kigali as a regional financial hub, with regulatory frameworks more hospitable to fund investment and cross-border capital flows. Nigeria has taken tentative steps toward expanding the permissible investment universe for pension funds. Kenya’s Capital Markets Authority has engaged with the private equity and venture community more seriously than most of its counterparts on the continent.
The pace, however, is uneven and the progress fragile. Regulatory modernisation in Africa tends to follow a familiar pattern: a reform-minded official drives change, builds momentum, and then rotates out. The successor inherits the paperwork but not necessarily the conviction. Frameworks that took years to negotiate can be shelved, reinterpreted or simply ignored in practice while remaining intact on paper.
There is also a deeper problem that modernising specific regulations does not solve. Most African regulatory bodies lack the technical capacity to supervise alternative asset classes competently even when the political will exists. Evaluating a venture capital fund manager requires a different set of skills than auditing a commercial bank or reviewing a government bond prospectus. Those skills take years to develop. Regulators who are already stretched supervising traditional financial institutions are not well positioned to become experts in fund governance, carried interest structures and portfolio valuation methodologies simultaneously.
The consequence is a kind of regulatory paralysis that masquerades as caution. Approvals that should take weeks take months. Months become years. By the time a pension fund has navigated the process, the fund it wanted to back has closed, deployed capital and moved on.
Who pays?
The cost of this is rarely attributed well. When African venture capital funds struggle to raise from domestic limited partners, the explanation that circulates is usually about risk appetite: institutions are too conservative, too unfamiliar with the asset class, too captured by their boards. The regulatory drag sitting underneath that conservatism is less visible and therefore less discussed.
At Brentford Capital we come across this dynamic regularly when working with family offices and institutional clients who understand the investment case for venture exposure, but find themselves unable to act on it within the structures available to them.
The irony is considerable. African DFIs accounted for more than 60% of all DFI capital raised in 2025, compared to roughly 6% a few years earlier. The direction of travel is clear. Capital wants to move. The regulatory frameworks surrounding it were designed for a world where it was supposed to stay still.
A pension fund in Abidjan or Dar es Salaam allocating to African venture capital is not making an eccentric decision. It is making a rational one — provided the infrastructure exists to support it. Diversification away from sovereign debt in heavily indebted countries is not adventurous. It is prudent. The frameworks that treat it otherwise are not protecting anyone. They are protecting themselves,
The continent has spent considerable energy over the past decade building the case that African institutions should back African innovation. The argument has largely been won at the level of principle. What has not kept pace is the regulatory modernisation required to translate that principle into practice. Until it does, the most consequential barrier to domestic institutional capital is not appetite. It is paperwork.
This article is republished with permission and originally appeared on SubStack.
