Chicago Teachers eyes Africa investments in next fiscal year

The $12.2bn pension made its first direct allocations to African private markets in 2019 after previous exposure via funds of funds.

Miller-May: the challenge [in Africa] is around returns
The Chicago Teachers’ Pension Fund is preparing to deploy more capital in Africa, two years after it made its first direct investments in the region.

“We are looking to return to Africa in our next fiscal year and we hope that the managers we have chosen… help us to continue to convince our stakeholders and our trustees to continue with this Africa-based strategy,” Angela Miller-May, chief investment officer at the pension, told the African Private Equity and Venture Capital Association’s conference on Tuesday.

“We are looking for it to grow and prove out the themes that we are looking at.”

In terms of geographies and sectors, Miller-May said the $12.2 billion pension is “driven by the growth story in Africa” – especially on sector drivers around demographics and urbanisation – regional integration and its business environment.

She noted that the pension’s investment team saw opportunities in West and Central Africa when they began research on the regions in 2017. Managers the pension chose invested in sectors spanning telecommunications, financials and agriculture.

The pension first invested in Africa in 2019, Miller-May said. It committed $10 million each to Development Partners International and Advanced Finance and Investment Group – the first time the pension invested directly in emerging markets. Previously, it committed capital via fund of funds managers.

Chicago Teachers pension has a 5 percent target allocation to PE that stood at 4 percent as of January, according to PEI data.

Miller-May also said during the panel that the business case for continuing to invest in Africa rests on performance.

“We chose Africa because we felt it was a long-term play and because it diversified our US private equity [portfolio]. But we are still challenged with, ‘Why Africa as opposed to the US?’

“The challenge is around returns. The returns have to be comparable [to US PE] if not better for us to continue to invest.

“If you think about Chicago Teachers, we are an underfunded plan and we’re looking at low returns and low growth going forward. So, we are seeking out where we can find risk adjusted returns that give us the growth that we need.”

Fundraising by Africa-focused GPs fell 72 percent to $1.2 billion last year from $3.9 billion in 2019 amid the economic effects of the pandemic, according to data from AVCA. The total value of deals last year also dipped slightly to $3.3 billion, from $3.8 billion the prior year.