Expected to overtake commodities as most favoured asset class.
Excited by the continent’s emerging middle class, investors are looking to make significant leaps in capital commitment in Africa, with private equity expected to overtake commodities as the most favoured investment asset class, BusinessDay investigations reveal.
An unprecedented $3 billion in funds was raised in private equity investment in the continent in 2011, with South Africa (SA) and Nigeria accounting for the bulk of the transactions, research firm Preqin said.
A breakdown of each country’s share of the continent’s private equity investment for 2011 shows that SA accounted for $1.86 billion, while Nigeria followed closely with $1 billion, largely on account of the $750 million capital investment in Union Bank by a consortium led by African Capital Alliance (ACA), making it the largest private equity transaction in Africa in 2011.
For investors and industry observers, increased disposable income has led to growth in the consumer sector and this, along with greater political stability, has helped to improve macroeconomic condition in Africa, something that can only raise the region’s profile as an attractive investment option.
“Institutional investors are recognising an Africa that is better-governed, less dependent on resource extraction, and increasingly dominated by middle-class expectations,” said Nazem Al Kudsi, CEO of Abu Dhabi-based Invest AD, which manages funds investing in Africa and the Middle East. “These frontier economies are rapidly becoming the BRICS (Brazil, Russia, India and China) of the future”.
A recent survey of 158 global institutional investors by the Abu Dhabi-based company, Invest AD, revealed that more than half of the respondents (51%) believed Africa would be the most attractive region for investment growth in the next decade, with all of the investors expressing their intent to have some exposure to Africa by 2016.
Among the institutions surveyed, are private equity funds, pension funds, sovereign wealth funds and endowments spread across Europe, Africa, the Middle East, Asia and North America, managing funds in the range of $250 million to $10 billion.
Commodities are currently the most popular asset class for global institutional investors who are looking to Africa (43% rank it in the top two asset class), but investors say private equity will give the most opportunities in three years (47% rank in the top two asset classes), followed by infrastructure (38%).
However, corruption is still a major source of concern (41% chose this as one of the main three challenges), along with “weak institutions” (40%) and “illiquidity in capital markets” (36%).
Some of the major players in the Nigerian private equity fund space, include African Capital Alliance, Actis, Vectis, Emerging Capital Partners (ECP) Ethos and Travant.
While the top five SA- based private fund managers by aggregate capital raised over the last 10 years, are Pamodzi Investment, Ethos Private equity, Kingdom Zephyr, Absa Capital private equity and Brait private equity.