Within the realm of emerging markets private equity, successful GPs often gain reputations for finding opportunity in unlikely settings. Emerging markets specialist Actis is frequently mentioned in this context, given the firm’s trailblazing investment activities in Africa and Asia.
Now, the firm’s attention has landed on launching its first dedicated real estate fund. The focus? Sub-Saharan Africa.
Actis’ new $150 million (€117 million) Africa Real Estate Fund includes a $100 million commitment from sole investor CDC – the UK government-owned, development-focused fund of funds – plus existing Actis investments that have been transferred to the fund.
As a firm, Actis’ first priority was to raise and establish its suite of private equity funds, and more recently, the firm also decided to expand its range of activities from pure private equity to a broader array to include real estate, says Morley. “We recognised [real estate] as a separate asset class and given the specific expertise required, we decided to treat it separately.”
“We believe the timing is good from an African perspective,” explains Morley with regards to why Actis chose to focus on sub-Saharan Africa for its first dedicated real estate fund. “We wanted to build on the experience we already had in Africa, where we were already invested in real estate prior.”
From an opportunities standpoint, the growth story is playing out in a multitude of countries in sub-Saharan Africa – with gross domestic product rising 5.2 percent in the region last year. Foreign direct investment to the region is also increasing according to World Bank data, with $17.6 billion funnelled into sub-Saharan Africa last year – notably higher than the $6.2 billion of FDI inflow to the region in 2000. And while the resource/commodities price dynamic plays a significant role in spurring this growth, it is not the only driving factor.
“Certainly we see a significant uptick in investment from South Africa,” says Morley. “For example, West Africa has an attractive size for market growth, and we are seeing significant interest from South African retailers looking to extend their portfolio of retail stores in West Africa.”
“There is a dearth of an international class of properties across both commercial and retail sectors in sub-Saharan Africa,” notes Morley. “On one hand you have a dearth of existing stock, and on the other, you have increasing demand. By intermediating between the two, we feel we can play an important role.”
Investing the real estate fund in this environment is a Johannesburg-based team of six Actis investment professionals. Despite the real estate fund being managed separately from Actis’ existing $550 million Africa private equity funds, Morley anticipates a significant level of collaboration between Actis’ Africa real estate and private equity teams.
“We would certainly hope to see synergies between the two teams and funds,” says Morley, who joined the firm now known as Actis in 1990 and established the firm’s South Africa team in 1995. “And we certainly hope and expect that we are better able to find and assess opportunities based on the experience and relationships we have already in Africa.”
The strategy is not to cover the entire African continent, but rather to concentrate on a select few countries deemed particularly attractive by the firm, says Morley. These markets include Ghana, Nigeria, Tanzania and Kenya – where Actis already manages assets – although Morley does not expect the new real estate fund to invest exclusively in these markets.
As with many markets designated as “emerging”, the focal points of Actis’ real estate activities are not without their challenges. However, these areas of interest tend to be more open to foreign investment than not, and of the legal or regulatory obstacles that do exist, many times Actis can overcome these hurdles doing some extra diligence in choosing its partners.
“By and large, there are few regulatory impediments to offshore investors and developers in building and earning real estate assets in the countries in which we invest,” says Morley. “It varies country by country, but the point to make is that we clearly invest a lot of time and effort in choosing the partner – if we get to a dispute, either we didn’t structure the investment right or we didn’t choose the right partner.”
This approach applies for both real estate and private equity investment activities in sub-Saharan Africa. With Actis’ experience – and successes – gained from a long history of investing in Africa, it seems that the firm is well positioned to realise what potential the region may have on the real estate front as well.