CDC was the world’s first development finance institution – it’s now more than 70 years old – and invests both directly and via funds. Clarisa De Franco, managing director, Africa funds, funds and capital partnerships, shares her thoughts on the trend for impact investment and how the industry can overcome the challenges it faces.
What advice would you offer to first-time investors in Africa?
You really need to understand what you are looking for: are you purely after returns or is impact also important? Do you want exposure to certain sectors or markets? There is now a wide variety of managers and funds across the continent, yet there is still not much information available.
What kinds of information could be developed?
The overall performance headline numbers only tell you so much. We are working with other DFIs and, potentially, the African Private Equity and Venture Capital Association, to provide more detailed breakdowns, showing, for example, what performance looks like in local currencies. We’re also working with local investors to find out what kind of information they need that would encourage them to invest in African private equity markets.
What challenges are you seeing in the industry?
It’s still a relatively new industry and many GPs still aren’t thinking ahead enough when it comes to their organisations, about succession and how to share the economics more widely within teams to ensure alignment. This is common to any private equity market under development – we saw the European market go through the same phase a decade ago.
How is the appetite for impact investments affecting the African market?
The bulk of managers today make reference to the UN’s Sustainable Development Goals. That is one way they are looking to attract capital from investors, and that is a big change because previously many managers didn’t want to be labelled as impact funds.
One area starting to emerge is an increased focus on the diversity of team make-up, partly driven by a group of US investors such as foundations and endowments that are increasingly challenging GPs around, for example, more gender-balanced teams. The International Finance Corporation published a report this year on private equity and venture capital in emerging markets and found that firms with gender-balanced teams generated higher returns.
What are you seeing in exits in Africa?
Exits are happening, but it is still challenging. For the majority of companies, IPOs are not an option and so trade sales and secondary buyouts are a more realistic outcome. The development of secondary buyouts is positive, though, as it is helping build out the private equity industry more generally.
Quite a few exits have been delayed over recent times and some are running out of extensions. Pricing has come down, so that may be an issue for some, but for those with capital, that will be an opportunity.