Friday Letter the missing module

The emergence of Angola’s first-ever private equity fund reminds that the buyout industry, despite stumbling blocks, continues to play an integral role for SMEs around the world.

Much ink has been spilled over the “death” of the private equity industry. To be sure, frozen credit markets, contracting sectors and a global recession have created a field full of hurdles, particularly as regards the highly leveraged mega-buyouts that characterised the prior market cycle. Those transactions may have “gone the way of the dodo”, to use Leon Black’s analogy, but other segments of the private equity industry are clearly alive and kicking.

Take Africa, for example, where entreprenurial talent is still largely untapped and an infinite number of SMEs – which are badly needed to stimulate economic growth and employment – remain starved for growth financing and operational expertise.

As evidenced in more mature markets and other emerging economies, lower mid-market firms can skillfully fill this void and generate smashing returns at the same time. So it’s perhaps not surprising that ever-more specialist lower mid-market firms are budding in Africa.

This week, PEO was the first industry news outlet to reveal that Angola, previously the preserve of energy specialists and pan-regional private equity players, will soon have its first domestic private equity fund founded by a local bank and a development finance institution. Angola Capital Partners will hold a $23 million first close next month on its way to $100 million.

Prepared to invest up to $10 million per deal in all sectors save for oil, the firm points to Angola’s rapid growth rates in recent years as evidence of an economy ripe for direct private equity investment.

Across Africa, government reforms, burgeoning middle classes and a quickly evolving financial services industry are among the factors combining to create a rare opportunity for both domestic and foreign investors. (Some of Africa’s most experienced private equity managers and investors will address these and other vital issues at our upcoming PEI Africa Forum in London).

These are exciting times for the private equity industry in Africa. And such examples should hearten private equity professionals feeling discouraged: the industry’s dynamics may evolve, but GPs certainly needn’t worry about becoming extinct.