What are the funds changing the face of private equity in Africa?

What are the funds changing the face of private equity in Africa?

Private equity into Africa is taking off, with a total of $33bn closed since 2002 or being raised, according to Anvanz Capital. The investment firm also estimates that 115 general partners manage 158 private equity (PE) funds dedicated to the continent and claims that more than half the funds are smaller than $200m. The African Development Bank (AfDB) puts the figure higher: it estimates that there are 200 equity investors actively involved in the African PE market.

The bulk of the equity funds attracted to Africa are ‘specialised funds’ with focus on natural resources, infrastructure and renewable energy sectors, but the picture is changing as established global players raise dedicated pan-African funds that invest across sectors, and smaller boutique outfits chase deals that the bigger traditional investors do not look at.

The role of public companies

Among the most important PE players are public companies, which often base their investment decisions on considerations other than pure profit. The most notable of these are the international financial agencies. While the AfDB mostly finances projects through loans, it has very substantial PE commitments – $82m in 2011 – and acts as an anchor investor in a number of funds. The AfDB explicitly favours investments that will develop Africa’s agriculture and infrastructure.

The World Bank’s International Finance Corporation (IFC) has investment commitments of more than $3bn in North and sub-Saharan Africa. While, like the AfDB, it seeks to develop economies, it has stakes in many small and medium enterprises.

Britain’s CDC Group (only the initials are now used; it was previously called the Colonial Development Corporation) served a similar function in the British Commonwealth. In 2004, the CDC spun off its PE business as Actis and now does all its direct investments through Actis. The latter has a total of $5bn in assets under management (AUM), of which 38% (just under $2bn) is invested in Africa. CDC remains Actis’s anchor investor and represents 40% of funding.

France’s counterpart to Britain’s CDC, PROPARCO, is majority-owned by the Agence Française de Développement, with private investors holding the remainder of share capital. It is particularly present in the French-speaking countries (especially in Morocco, where it has invested $3.5bn in the 20 years of its presence in the country).

The China-Africa Development Fund (CAD Fund) had $800m invested in Africa in 2010, much of that in mining operations seen as strategic.

South Africa’s Public Investment Corporation (PIC) may yet turn out to be the biggest public fund to invest in African PE. The public pensions’ giant has R1trn ($115bn) in AUM, and in 2012, after it obtained the necessary authorisation from the government, it announced its intention to begin investing in the rest of Africa. In South Africa the PIC favours listed equities, but chief executive Elias Masilela has said that the thinness of Africa stock markets will drive the PIC to look for PE and property opportunities.

All the fund managers listed above serve as anchor investors: if they put funds into a project it is usually easy for management to raise any other capital that may be required. So the IFC’s $2bn invested in sub-Saharan Africa made it possible to mobilise a further $590m from other investors. The managers tend to prioritise investments of a kind to unlock more economic value, especially in infrastructure. In this way they play a hugely important role in economic development even if in the case of PROPARCO and the CAD Fund they do so to advance the business interests of national companies.

The PE giants turning to Africa

There are also global PE heavyweights that have started turning their sights on Africa in recent years. The Carlyle Group, a giant with $165bn in AUM, launched a $500m dedicated Sub-Saharan Africa Fund with the AfDB as an anchor investor in 2011 and opened offices in Johannesburg and Lagos. It began investing on Middle East and North Africa (MENA) markets in 2006.

Other behemoths have started their African portfolios with stakes in more developed markets, like Kohlberg Kravis Roberts with its controlling stake in Egypt’s Hedef Alliance, or Blackrock with a position in South Africa’s Umcebo Mining. We expect these portfolios to include more African positions over time.

Blackstone, which has a number of energy positions in its global portfolio, has invested in an offshore exploration deal with Kosmos in Cameroon. Dubai’s Abraaj collected quite a few sub-Saharan investments with its buyout of Aureos Capital in February 2012, while Saudi Arabia’s Kingdom Zephyr manages a dedicated $600m pan-African fund and has other North African positions in its global funds. Britain’s Standard Chartered Bank has invested more than a billion dollars in private equity worldwide, much of that in Africa.

The biggest dedicated Africa PE manager is Washington-based Emerging Capital Partners (ECP), with $1.85bn in AUM in seven dedicated funds. The United Kingdom (UK)’s Helios Investment Partners is of a similar size: this Africa specialist has $1.7bn under management. London-based Africa specialist Development Partners International (DPI) manages the €270m African Development Partners fund, invested across all sectors and countries on the continent, but with a specific focus on consumer evolution stories. One of its key investors is the CDC. South Africa’s Investec Asset Management manages Africa Frontier Private Equity Fund which closed at $135m in 2008.

Because large funds face deal size constraints that force them to pass on some potentially profitable deals – Actis has a minimum investment of $50m – smaller players have recently started emerging. In this category we can list Jacana Partners with $35m in AUM and which looks at deals of between $1m and $5m, TLG Capital, where the biggest deal is $13m, or Miro Asset Management, a Dubai-based boutique investment firm that specialises in sustainable agriculture and forestry and clean energy.

About Femi Oke

Relentless passion for creativity and digital acumen to help a professional services firm thrive in the digital space. Femi is an individual with a rich experience on regional African knowledge, its diverse business culture and he understands the continent’s economic drive. He thrives on selfless service and lasting mutually beneficial relationships with colleagues and especially clients encountered in the course of his duties. He is creative, practical and self-motivated with business judgement in corporate, brand and strategic communications, social, digital & traditional media and executive profiling. Roles in the firm include New Media, Digital Communication, Corporate Communication, executive profiling and Brand Management execution. Working on the multi-million dollar Africa high growth market project stands out for femi; besides this, managing all KPMG’s digital communication for the World Economic Forum on Africa is another project that gives him great delight. Femi holds a Masters Degree in Global Marketing from the University of Liverpool.

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