On Monday Johannesburg-based private equity firm Ethos Private Equity announced its intention to list Ethos Capital on the main board of the Johannesburg Stock Exchange with the aim of raising R2 billion (€126 million; $139 million) to invest in Ethos funds.
The listing marks the beginning of a journey that Ethos Private Equity CEO Stuart Mackenzie and Ethos Capital CEO Peter Hayward-Butt hope will lead to the creation of the leading alternative asset management platform in sub-Saharan Africa.
The combination of investor demand for new products and 30 years of investment in its private equity capabilities and infrastructure led to “a vision to broaden what we do from being just purely a one-fund private equity investor to being a multiple asset class alternative asset investor”, Mackenzie told Private Equity International.
A simple first step was for the firm – currently investing its sixth buyout fund – to launch a mid-market fund to address the part of the market on which Ethos focused in earlier funds. The fund, which is black-owned, is looking to raise R2.5 billion to R3 billion.
This month the firm also acquired South African mezzanine capital provider Mezzanine Partners, and is planning to launch a mezzanine fund.
With plans to return to market for a R8-10 billion flagship fund toward the end of the year, Ethos – which was about to go from a single fundraising to three simultaneous fundraisings – identified a listed offering as an ideal facilitator for its strategy expansion.
“We saw a need for a permanent capital vehicle to help feed these strategies, [which] would be extremely advantageous to the realisation of this vision that we set for ourselves,” Mackenzie said.
And Ethos is not intending to stop there. Following in the footsteps of global giants KKR and Carlyle, the firm sees opportunities to broaden still further.
“We certainly see opportunity to grow beyond just mezzanine and mid-market in the broader alternatives space,” Mackenzie said, stressing that the focus in the near term will be on integrating the new strategies and refining the operating model.
Intending to follow an “over-commitment strategy”, Ethos Capital is expecting to commit R1 billion to the mid-market fund, R2.5 billion to Fund VII, and R400 million to the mezzanine fund. It will also seek to take a 10 percent stake in the R8.4 billion Fund VI and has earmarked up to 30 percent of Ethos Capital NAV for co-investments alongside Ethos funds.
Mackenzie said Ethos is noticing a number of “really great managers out there who are struggling to scale themselves because of the regulatory environment, the fundraising environment.”
Similar to what the firm has done with Mezzanine Partners, Ethos will look to bring whole teams or even whole managers under its umbrella to build out its platform.
“We provide an incredibly strong value proposition to managers in the alternatives space,” Mackenzie said.
“A mid-market manager trying to launch a first-time fund or even a second-time fund on their own in this market will find it extremely difficult. Being able to launch it off the Ethos platform, a whole lot of benefits come from that. We have dedicated investor relations, we have world class support infrastructure from governance, finance and compliance, we have an analytical engine in the firm that can churn out research, we have an origination engine that brings deals in the door on a consistent basis, and we have a value-add team that is capable of really accelerating growth strategies within these companies.”