Development Finance Institutions investing in African private equity

by Bogusia Glowacz

  • 29 Mar 2011
  • PE

Preqin recently conducted a survey of DFIs investing in African private equity. Our Investor Intelligence database includes 51 DFIs actively investing in Africa-focused private equity funds, representing 9% of all LPs investing in private equity in the region. Among these DFIs, 21 also allocate a certain proportion of their investment portfolios to African private equity on regular basis.

DFIs have long been important investors in African private equity as they help to stimulate the local private sector through capital investments, while also ensuring strong investment returns from funds. Some of the major DFIs investing in the continent include the World Bank’s International Finance Corporation (IFC), the Overseas Private Investment Corporation (OPIC), the UK’s CDC Group and Germany’s DEG.

A substantial proportion - three-quarters – of surveyed DFIs indicated a preference for Africa-focused vehicles managed by local firms and by international GPs with a local office. It suggests a considerable amount of confidence among LPs in the ability of locally-based managers to assist with economic development through investments in private equity. As one investor pointed out, this is due to “an increase in the professionalism and quality of management teams [in Africa]”.

DFIs have also expressed an interest in private equity fund investments focusing on a wide range of industries, including telecoms, financial products infrastructure, agribusiness, renewable energy and financial systems, as well as a variety of fund types and geographies. Notably, however, the survey found that a key factor in the selection of private equity fund investments is the correlation with the principles and guidelines of individual DFIs.

The future activity of DFIs in African private equity looks promising, with an overwhelming majority of respondents (92%) in our survey seeing the region as presenting attractive investment opportunities. Furthermore, nearly all active DFIs in Africa-focused private equity funds are set to make an investment in 2011 and 92% of respondents expect to increase or maintain their allocation to investments in African private equity in the long term.

DFIs are expected to remain an important source of capital for GPs looking to raise Africa-focused private equity funds in the coming years, particularly for those managers based locally. Going forwards, these institutions anticipate continuing their investment activity in the region, which is seen by many as presenting more attractive investment opportunities than ever before.

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