Investing in Africa may not be every investor’s cup of tea. But there are signs that LPs are starting to warm to backing GPs focused on the continent: last month The Abraaj Group closed its third Sub-Saharan Africa-dedicated private equity fund on its $990 million hard-cap, while in March, Development Partners International, a pan-African firm, closed its second fund on $725 million. In January, Helios Investment Partners collected $1.1 billion for its third fund.
More than 60 percent of the capital in Abraaj’s fund came from European and North American investors. “The world has taken note of what we all along have seen as a very strong investment opportunity driven by the growing middle class, driven by the demographics, driven by the improved governance on the continent,” Mustafa Abdel-Wadood, a partner at Abraaj, said at the time.
His view is echoed by Dorothy Kelso, director, head of research & strategy at the African Private Equity and Venture Capital Association. “What’s interesting about the recent fundraisings from Abraaj, DPI and Helios is the fact that so many different institutional investors from around the globe were interested in these funds, including endowments, foundations and pension funds,” she tells PEI.
One of the reasons why investors are developing an appetite for Africa is because some of the economies are growing much faster than Western markets, she adds. “For many years the growth rates in Africa have been higher than in other parts of the world.”
But is there a danger that too much capital is going into what remains often an illiquid market? The three African-focused funds raised this year have so far collected $2.45 billion, which is almost the same amount as the $2.49 billion that was amassed by 10 funds in 2014 according to PEI’s Research & Analytics division.
Another concern that LPs regularly cite is the lack of depth when it comes to exits in Africa. Yet Kelso believes this dynamic is changing. “In last year’s AVCA / EY Africa Exit Study, there were 207 exits in Africa between 2007 and 2013. While there were perhaps not that many exits a few years ago, the numbers are increasing.”
Judging by the recent fundraisings, it seems that many more investors are becoming convinced this is indeed the case.