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Have Investors Forgotten About South Africa? – August 2014

by Chloe Wong

  • 28 Aug 2014
  • PE

Given South Africa’s rich supply of natural resources, which includes various highly valuable minerals such as gold, platinum and coal, one would expect its economy to be bolstered by substantial streams of foreign and domestic investments. However, Preqin’s Funds in Market online service shows that investor appetite for South Africa-focused funds is generally relatively slack. Out of the $38bn in aggregate capital being sought by private equity funds primarily focused on Africa, only 12% is specifically targeting investments in South Africa as part of an exclusive or wider geographic focus. The total amount of capital amassed in 2013 shows that 13% of the capital committed to the continent ($11bn) was aimed at South Africa as part of an exclusive or wider geographic focus. Furthermore, with only four months left in 2014, fundraising statistics for the year do not look encouraging as only one fund that invests in South Africa, along with other countries and regions, has successfully completed fundraising in the year to date.

This fund is Carlyle Sub-Saharan Africa Fund. Carlyle’s maiden fund dedicated to Africa exceeded its $500mn target, closing on $698mn in April. The fund makes investments across the Sub-Saharan Africa region and aims to use a mixture of buyout and growth strategies. According to Preqin’s data, it is apparent that fund managers prefer buyout and growth strategies for funds targeting South Africa as part of an exclusive or wider geographic focus, with these fund types aiming to collect 57% of all the capital sought.

Once the world’s biggest gold producer, South Africa’s dominance in gold mining has diminished since the rise of gold production in other developing countries such as China and Peru. African Minerals Exploration and Development (AMED) Fund II is the only fund currently in market targeting mineral exploration and development projects in Sub-Saharan Africa. This fund is targeting $265mn, having held its first closed in December 2013, and is working towards its final close this year. Interestingly, since 2003 there have only been two natural resource funds closed that are focused on mineral exploration: New Africa Mining Fund II and AMED Fund II’s predecessor, AMED Fund I. 

South African fundraising does show some promise, however; in 2013, private equity funds which included South Africa as part of an exclusive or wider geographic focus secured $1.4bn in aggregate capital, which is the highest figure since 2007 ($1.6bn). Of the funds currently in market, 12 of the 23 vehicles have reached a first close and have raised an aggregate $874mn. Should these 12 funds reach a final close by the end of Q4 2014, the total capital committed to the region will surpass the total reached in 2013. Relatively low investor appetite for South Africa-focused funds may remain, but the latest statistics from Preqin suggest that the future looks brighter than it did before.

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