Ethos raises $800m for Fund VI

The Africa-based firm exceeded its original target of $750m, as existing LPs and new overseas investors looked to tap into the growth markets of Africa.

Ethos Private Equity has raised $800 million for its latest buyout fund, exceeding its $750 million target, the firm said.

Ngalaah Chuphi, the firm’s head of investor relations and sub-Saharan investing, told Private Equity International that the Africa-based firm, which started fundraising in 2011, attracted increased support from US corporate and public pension funds, fund of funds from both Europe and the US and sovereign wealth funds from the Far East,

Approximately 60 percent of Fund VI LPs also invested in the previous fund, while 40 percent are new. The majority of the capital came from overseas, with 40 percent coming from local investors, he said. Ethos declined to comment on which placement agency it used.

“It’s a very significant milestone; we grew our fund by 30 percent [compared to Fund V],” he said. “We attracted a significant international commitment despite global head winds.” This is due to the firm’s track record, according to Chuphi. “It has been more than 24 months [on the fundraising trail]. But the environment has not been easy, so I think it’s not atypical in the current world economic cycle,” he added.

It has been more than 24 months [on the fundraising trail]. But the environment has not been easy, so I think it’s not atypical in the current world economic cycle

Ngalaah Chuphi

Limited partners see South Africa as a potential gateway to sub-Saharan Africa, Ethos said in the statement. “Investors are looking for growth – and the growth in Sub-Saharan Africa is quite strong,” Chuphi said.  “South Africa is a medium growth country with about 4 percent growth rate; in sub-Saharan Africa, this is in excess of 6 percent. Growth in emerging markets is clearly driven by consumer expenditure and the growing middle classes. And that’s what’s driving the interest.”

Ethos’s Fund VI has made two investments so far: Waco International, a building and construction company, and Kevro, a supplier of corporate clothing and promotional products.

Ethos is a control buyout investor and usually aims to buy businesses in which it can take a 51 percent stake, Chuphi said, adding that the firm has a strong focus on value creation. The firm doesn’t like to use a lot of leverage in its buyouts. “We invest in growth businesses so therefore we use debt very prudently,” he said.

While obtaining senior debt in Europe can be a challenge, this isn’t the case in South Africa, he said. “South Africa is very unique compared to other emerging markets. It has a very strong banking system, rated in the top 10, well ahead of places like Japan and France. And we have good access to debt – around 3 to 3.5 times EBITDA.”

The firm anticipates a busy year ahead, he added, as it looks to make both acquisitions from Fund VI and exits from its fully deployed Fund V.