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Private Equity Fundraising: Africa vs. the Middle East – April 2016

by Ayush Varma

  • 18 Apr 2016
  • PE
  • VC

2015 was a turbulent year both economically and politically for Africa and the Middle East. Falling commodity prices and civil unrest saw GDP growth slow in Sub-Saharan Africa from 4.6% to 3.4%, while in the Middle East and North Africa (MENA) overall GDP growth was less than 3% for a third consecutive year. Despite the slowdown, both regions’ fundraising landscapes remained surprisingly resilient in 2015, with Middle East-focused private equity funds collecting an aggregate $2.1bn – a 28% increase on 2014 – and Africa-focused funds raising a record $4.5bn.

At the end of Q1 2016, Middle East-focused private equity and venture capital funds secured over $1bn more than their Africa-focused counterparts, largely due to final close of FIMI Opportunity Fund VI, which raised $1.1bn. FIMI’s latest vehicle is the largest ever raised by an Israel-based fund manager, and will seek to invest in mature and profitable businesses. However, the majority of funds closed and aggregate capital raised for Middle East-focused funds since 2006 target investments in Israel. Of the 181 Middle East-focused funds to have closed since 2006, 95 have specifically targeted Israel-based companies. Furthermore, of the six funds to have closed this year so far, five target Israel exclusively while one divides its focus across Israel and China.

Between 2014 and 2015, the average size of an Africa-focused private equity fund more than doubled, from $143mn to $373mn. This is due to a number of large fund closes – most prominently Helios Investors III – which reached a final close on $1.1bn. In contrast, Middle East-focused funds were generally smaller; half of the 20 funds focused on the region secured $100mn or less and as a consequence, the average size of a Middle East-focused fund was considerably smaller at $121mn. The largest Middle East-focused fund to close in 2015 was Apax Partners’ AMI Investment Platform, securing $500mn.

According to Preqin’s Private Equity Online, Africa-focused growth vehicles surpassed buyout vehicles as the most prominent fund type, accounting for 56% ($2.5bn) of aggregate capital raised for the region in 2015, compared with only 37% ($592mn) in 2014. Comparatively, in the Middle East, Israel-focused growth vehicles account for just 14% ($250mn), behind venture capital funds (38%) and buyout (28%). Funds focused elsewhere in the Middle East only account for 12% ($237mn) of capital raised in 2015; specifically, venture capital vehicles account for 79% and growth vehicles 21%.

The Africa-focused fundraising market is dominated by fund managers based outside the region. In 2015, they accounted for 81% of aggregate capital raised – up from 74% in 2014. On the other hand, fund managers based in the Middle East have consistently accounted for over 70% of capital raised for the region in the past six years. 

Fundraising focused on investment in Africa and the Middle East looks set to continue to defy the ongoing political and economic turmoil seen in these regions. There are currently 97 private equity funds in market across the two regions, which are collectively targeting $15bn in institutional capital commitments.

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