Per PEI’s LP Perspectives Study, 55 percent of LPs have greater or similar interest in Africa over the year ahead; do you expect fundraising challenges to ease in Africa in 2022?
Given the significant extent to which the covid-19 pandemic dampened fundraising in 2020 and 2021, we are generally expecting fundraising to improve or at least return to historical levels in 2022. The fact remains, however, that we are seeing consolidation in the private equity space in Africa with some larger names pulling back from the continent and some smaller names merging. This should lead to similar or slightly higher levels of capital pursuing a smaller number of managers, which could ease fundraising challenges, particularly for experienced managers. We expect some challenges to remain for first-time fund managers.
What developments could attract more institutional investors to Africa?
Institutional investors without a specific mandate to invest in Africa, still appear hesitant to allocate capital to the continent. The ongoing industry consolidation is catalytic, and it will result in higher industry performance, which in turn will attract institutional capital. We further feel that co-operation between public and private partners could entice more entries into Africa. A prominent example is the €200 million fund of funds, AfricaGrow, which is managed by Allianz and advised by DEG Impact. Our hope would be that institutional investors that foray into Africa on the back of similar initiatives continue to invest once they experience the financial and impact returns on the continent.
How is the exit environment evolving?
We are seeing some interesting developments in the exit environment in Africa. Firstly, we have seen significant pent-up demand for assets build over the last few years, which has led to increased activity. We are also seeing a wide range of exit channels, which has expanded from sales to strategic or institutional investors to IPOs in Africa and in London and New York. We are also seeing significant capital looking to take part in the evolving tech and fintech space in Africa, which has allowed some of our GPs to even explore SPACs as a route to liquidity.
Where does DEG see opportunities in Africa in the next 12 months?
First, we see great opportunities to continue to support the top GPs within our existing portfolio and assist them in coming back to market next year. Second, we are actively exploring highly topical platforms emerging in climate investments/nature-based solutions, healthcare, infrastructure and digitisation. Third, we are watching closely the second wave of tech/venture capital funds coming back to market in Africa, particularly those which have proven their ability to execute on their intended strategy.
Mack Schow is deputy head of DEG’s Africa team for funds and direct equity. With his team, he is responsible for a portfolio of $900 million in African private equity