On 12 June, John Félicité, ABAX UK Country Head, was present at the Private Equity Africa Summit in London. He delivers selected insights gathered from the various panel discussions he attended:
Pension funds should invest more into and across the African continent, directly or through Private Equity funds. On average, African pension funds have less than 1% of AUM invested into PE funds versus developed economy pension funds which have between 10-12%
African pension funds should also invest more on the continent, especially in infrastructure. The Nigerian pension fund has US$22bn in AUM and less than 1% is invested in infrastructure. The matrix measuring returns should be adjusted from IRR to impact, scalability, resilience to economic downturn.
The cautious attitude of developed market investors with regard to Africa is the lack of understanding of how ideas can be scaled up. Non-Africans see the lack of infrastructure as the main impediment to growth and prosperity.
The perception of African risk is greater than what it is in reality and keeping away investors. PE funds are coming but not enough to benefit all levels of society. The world’s top 500 companies currently earn 50% of their revenue in emerging markets but their investments in Africa remain low.
The cause for a slowdown in money invested in Africa-focused PE funds is that it becomes harder to raise money for 2nd and 3rd funds when there is no demonstrated exit for fund 1 because of unfavourable economic cycles.
Key factors for risk management are reputation, predictability of cash flows, understanding operational risk, talent pool and access to talent on the ground.
Understanding risk on the continent cannot be done with the same metrics as in other parts of the world. Having the right people on the ground is essential for adding value. The increasing number of western educated Africans returning to the continent is helping to build the bridges supported by cultural understanding. In addition, industry experts should also be available on the ground and boards are to include experts too.
Some PE funds try to delay the institutionalisation of companies as the founders are the implicit value. Putting in too many layers between workers and the founders is the quickest way to destroy value.
Fund raising is taking longer than 6 years ago. It can now take between 1 to 3 years, the average being 15 months. The African narrative needs to be driven and controlled by Africans.
Source: ABAX Services