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Investor Appetite for Private Equity in Africa

by Philippe Alteirac

  • 10 Jul 2012
  • PE

Private equity opportunities within Africa appear to be more and more attractive to investors in 2012. With continued instability in the economic markets, institutional investors are increasingly looking towards emerging markets for better private equity opportunities. Within emerging markets, the private equity market in Africa is developing at a considerable pace. Opportunities emerging in the region due to under-developed financial markets are attracting investors eager to capitalize, making Africa one of the fastest growing regions in the world. Seventy-six percent of LPs have an appetite for emerging markets, with 5% of those investors stating that Africa was presenting the best investment opportunities within emerging markets.

Africa attracts a number of government agencies and development finance institutions. One of the countries showing signs of promising investment opportunities is Ethiopia, Africa’s second most populated country. One investor, CDC Group, believes that Ethiopia presents strong private equity opportunities. The UK-based government agency has historically shown an appetite for investing in Africa and has recently committed to the first Ethiopia-focused fund, Schulze Global Ethiopia Growth and Transformation Fund I. The growth fund will look to invest in promising businesses in a range of sectors within Ethiopia, including agro-processing, industrials and manufacturing. The fund, targeting $100mn, has secured a $15mn commitment from CDC Group, which is acting as the cornerstone investor in the fund.

Three hundred and fourteen institutional investors from around the world have previously invested in funds that have exposure to Africa. In a breakdown of these investors by location, almost half (47%) are located in North America, with a further 26% based in Europe. Investors based in the region itself make up another 14%.

Public pension funds are the most prevalent amongst LPs which have had previous exposure to Africa, representing 16% of such investors. Both Washington State Investment Board and Pennsylvania Public School Employees' Retirement System have made commitments of $250mn and $100mn respectively to Actis 4, a growth fund which is focusing on investments in emerging markets, including Africa. Other investor types that have an appetite for Africa include foundations, which account for 15%, and banks, which represent 13%. Insurance companies and endowments each account for 10% of the investors that have previously committed to funds that have exposure to Africa, whilst government agencies represent 5%.

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