Throughout the financial year, Uganda’s retirement benefits sector continued to see record strong returns from government securities, despite these good yields, attention is increasingly shifting towards alternative investments as a means of diversifying portfolios, supporting economic growth and strengthening the country’s capital markets.
For years, government securities have been the cornerstone of investment portfolios for many retirement benefit schemes in Uganda. “Attractive coupon rates, favourable tax incentives and the security associated with government-backed instruments have enabled pension funds to generate healthy returns for their members”notes Daisy Linda Nabakooza, URBRA’s head of Supervision.
However, while this investment strategy has served schemes well, regulators and industry stakeholders are now looking beyond traditional fixed-income investments. The conversation is increasingly centred on alternative investments, an asset class that includes private equity, infrastructure projects and other long-term investment opportunities capable of delivering competitive returns while contributing to national development.
Why the shift?
The retirement benefits sector has become heavily concentrated in government securities, these investments are generally regarded as low-risk, accounting for 82% of total scheme assets under management according to the 2024/25 Retirement Benefits Sector Performance report by URBRA.Although they have provided stable returns, excessive concentration in a single asset class creates exposure to concentration risk.And should conditions within the government securities market change, a large proportion of retirement schemes could be affected simultaneously. “This is a concern not only for pension funds but also for the wider financial sector” adds Ms. Nabakooza.
Regulators are therefore monitoring these risks through the Financial Stability Forum while encouraging broader diversification of investment portfolios.
Diversification has long been recognised as one of the fundamental principles of sound investment management. By spreading investments across different asset classes, pension schemes can reduce overall portfolio risk while positioning themselves to benefit from opportunities across multiple sectors of the economy.
Uganda’s growth potential and Retirement Benefits
Alternative investments present an opportunity for pension funds to play a much bigger role in Uganda’s economic transformation.
Unlike short-term investors, retirement benefit schemes manage long-term savings on behalf of members. Their investment horizon allows them to finance projects that may take years to generate returns but have the potential to create lasting economic value.
Infrastructure development according to Ms. Nabakooza, is one such area, Roads, energy projects, industrial parks and other strategic infrastructure require significant capital that is often difficult to obtain through traditional financing channels. Pension funds, with their long-term investment outlook, are well positioned to participate in carefully structured infrastructure investments, particularly through public-private partnerships supported by appropriate regulatory oversight.
Beyond infrastructure, alternative investments could also provide much-needed financing for growing businesses. Small and medium-sized enterprises (SMEs), manufacturing companies and emerging industries often face challenges accessing affordable capital through conventional bank lending. Pension funds could help bridge this financing gap by investing through professionally managed private equity funds.
Deepening Uganda’s capital markets
Ms. Nabakooza notes that one of the broader objectives behind promoting alternative investments is the continued development of Uganda’s capital markets. A well-developed capital market provides businesses with multiple sources of financing while giving institutional investors a wider range of investment opportunities.
Expanding the universe of investable assets reduces dependence on government securities and creates a more balanced financial ecosystem. As more investment vehicles become available, pension schemes can construct more diversified portfolios that better align with their long-term investment objectives. This diversification also supports financial stability by reducing systemic concentration within a single asset class.
Several sectors present promising opportunities for alternative investments. Uganda’s growing oil and gas industry, the expanding manufacturing sector and continued investment in infrastructure all require substantial long-term financing. These sectors have the potential to generate attractive returns while contributing to employment creation and broader economic development.
Government has also demonstrated increasing commitment to creating an enabling environment for alternative investments, recognising their importance in supporting economic growth. For Retirement Benefits Schemes, these developments represent an opportunity to invest in productive sectors of the economy while continuing to meet their fiduciary responsibility of safeguarding members’ savings.
Building the right framework
“While the opportunities are significant, successful implementation requires an appropriate regulatory and governance framework”- Ms. Daisy Nabakooza,
Industry discussions are already underway to develop clearer guidance on alternative investments, particularly in areas such as investment valuation, governance standards and trustee oversight. The objective is not simply to encourage more investment, but to ensure that every investment decision is supported by rigorous due diligence, proper risk assessment, and transparent reporting.
Developing these frameworks will give trustees greater confidence when evaluating new investment opportunities while maintaining their primary responsibility of protecting members’ retirement savings.
Looking ahead
The growing conversation around alternative investments marks an important milestone for Uganda’s retirement benefits sector. Government securities will undoubtedly remain an important component of scheme portfolios. However, the future is likely to involve a more balanced approach, one that combines the stability of traditional fixed-income investments with carefully selected alternative assets capable of delivering long-term value.
If supported by strong governance, clear regulation and sound investment practices, alternative investments could help strengthen retirement outcomes, deepen Uganda’s capital markets and provide the long-term financing needed to drive sustainable economic growth.
For Uganda’s Retirement Benefits sector, the next phase of investment may not simply be about earning higher returns it may be about investing in the country’s future while securing the financial future of savers.