Study: Africa seeing strong demand from LPs

AVCA survey finds investors in private equity funds have a bullish outlook on Africa for the near future

Investors consider Africa a more attractive emerging market than other regions for private equity, according to a study by the African Private Equity and Venture Capital Association.

Half of the limited partners surveyed indicated they plan to increase their private equity investment in Africa in the next three years, and more than a quarter of those LPs are looking to commit to funds in the continent for the first time.

“As the industry body representing private equity in Africa, it is promising to see that the fundamentals of the continent continue to attract global LPs, particularly among the newer investors in Africa,” AVCA chief operating officer Dara Owoyemi said in a statement.

At the annual AVCA conference in London this week Kathryn Lincoln, chair and chief investment officer of the Lincoln Institute of Land Policy, a $525 million fund, told delegates that of the total funds available to her to allocate to, currently two percent is in African investments.

“We’ll probably double that or triple it over the next year or so,” Lincoln said.

Jainen Thayer, chief investment officer for the $800 million Oberlin College Endowment, told delegates that the different drivers within each region of the continent, and within each country within those regions, create a wide variety of opportunities for private equity.

“I don’t know of anywhere else in the world that offers that much of a diverse opportunity set,” Thayer said.

The City of Baltimore Employees’ and Elected Officials’ Retirement Systems does not currently invest in Africa, but executive director and chief investment officer Roselyn Spencer attended AVCA’s conference with the view to beginning the process.

Originally from West Africa, Spencer told delegates she is keen to kick-start the pension fund’s program in that region.

“In terms of macro-economics, it’s improved so much in the region. There are some great opportunities,” Spencer said. “There are great things happening in Africa.”

Eighty-five percent of LPs surveyed by AVCA expect returns in African private equity to exceed 2x in the next five years, with 14 percent expecting returns in excess of 3x.

Still, investors acknowledge there are some challenges to allocating private equity funds to Africa. The study found they are concerned with a lack of established African general partners, a weak exit environment, short-term political risk and scarcity of talent. Four in 10 respondents viewed governance as more important than environmental or social factors for investing in Africa.

The second annual Limited Partner Survey collected data from 68 limited partners across the globe in endowments, family offices, pension funds and development finance institutions, among others, with total assets under management ranging from less than $500 million (£326.6 million; €456 million) to over $50 billion.