Emerging markets’ fortunes were much clamoured about during the height of the financial crisis with the crumbling of the financial credibility of developed countries. However, Preqin’s data shows that throughout 2013, the private equity industry slowed in emerging markets as deal volumes diminished to record lows and fundraising decelerated.
Last year saw the large players in developed countries re-assert their dominance of the private equity space, with North America and Europe-focused funds both regaining the lustre of the pre-crisis years with their best fundraising figures since 2008. In contrast, emerging markets saw fundraising falter. For example, Latin America’s aggregate capital raised by private equity funds in the year fell by 31% from the year before, with Asia-focused funds garnering 22% less capital than in 2012. Such discouraging statistics may well be a reflection of investors shying away from these emerging markets in favour of the larger and recovering markets of developed countries in hope for significant returns.
However, Preqin’s Funds in Market online service shows that one emerging market continued to grow in 2013 and has sustained this trend into the first quarter of 2014. Africa’s aggregate fundraising figures stand out among its peers, with 34% year-on-year growth from 2012 to 2013. Several changes have been highlighted as important triggers behind Africa’s meteoric rise to a much desired location for LP capital. Demographic and political shifts have brought the young and expanding consumer-conscious middle class to the fore. The Arab Spring uprisings have not only underlined the significance of this generation for Northern Africa but have encouraged domestic governments to spend more, boosting GDP growth.
The historical polarity between Southern Africa and the rest of the continent is starting to diminish with private equity firms declaring interest in Kenya, Nigeria and Northern Africa among other regions. Indeed, global private equity powerhouse Carlyle has expressed interest in investing in North Africa from their office in the Middle East and has also put plans in place to expand their network of offices into Kenya. The firm opened a West Africa office in Nigeria in 2011 and is expected to wrap-up a $700mn Sub-Saharan Africa-based Fund in the near future. The fund has already started investing its capital, having held a second close in the latter stages of 2013, purchasing a Mozambique-based transportation company.
The relatively young nature of the African private equity market has encouraged foreign investors and firms to invest in the region, as it often means greater value and less competition. This is especially true outside of South Africa, with the large majority of private equity firms headquartered in Africa operating out of South Africa-based offices; 62 out of the 133 domestic managers. Furthermore, 69% of fund managers that raise Africa-focused funds are either currently raising their first fund or have only raised one fund in the past.
Given Africa’s relatively untapped potential, it has attracted the interest of a number of investors and fund managers, especially as the region undergoes major social, economic and political shifts, which may lead to further growth in Africa’s private equity market in the future.