Private Equity Partners Have long-term commitment Investment in Africa – AVCA Survey

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The African Private Equity and Venture Capital Association (AVCA) released its sophomore Industry Survey drawing African Limited Partners and General Partners commitment to African investment as long-term.

The survey report that was released on April 15, was conducted in review of broad cross-section of global and African Limited Partners’ (LPs) and General Partners’ (GPs) to determine perspectives and attitudes of investing in African private equity (PE) across various categories, sectors, geographies, investment stages, challenges, and returns.

According to the survey report, Majority of Limited Partners (86%) plan to raise or maintain their allocation to African Private Equity {PE} over the next three years, with impact and the investment mandates viewed by most Limited Partners as the primary factors driving their investment approach.

ALSO READ: Investing in Africa: Trends driving Private Equity and Venture Capital in Africa

65% of Limited partners said that the African Private Equity {PE} attractiveness remained the same even in the wake of coronavirus global pandemic with 68% of LPs viewing Africa as more attractive market for Private Equity investment compared to other emerging and frontier markets over the next ten years. Similarly, 67% view African Private Equity as more attractive or as equally attractive as Private Equity investment in developed markets over a five-year horizon and this figure rises to 74% over a ten-year horizon.

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In terms of geographies, 71% of Limited Partners jointly selected West Africa and North Africa as attractive regions for Private Equity investment over the next three years, whereas 77% of General Partners cited East Africa as an attractive region for the same period.

The second-largest share of Limited Partners viewed Egypt as an attractive country for Private Equity investment in Africa over the next three years.  Notably, Kenya and Nigeria are viewed by the largest proportions of Limited Partners and General Partners as attractive countries for Private Equity investment during the same period. This marks a consistent year-on-year trend, as the highest percentages of Limited Partners and General Partners in last year’s survey had also selected Kenya and Nigeria as attractive countries for PE investment.

According to the study, Healthcare & Life Sciences, Financial Services and Technology were identified by Limited Partners as the most attractive sectors to invest in over the next three years, while General Partners see Healthcare & Life Sciences, Technology and Agribusiness as the most favorable sectors throughout the same period.

Majority of Limited Partners (53%) consider investing in a first-time fund manager, with 59% doing so over the past five years.

Limited Partners consider a perceived weak exit climate and unpredictable exit windows as barriers to Limited Partner investment in African Private Equity.  Nevertheless, 81% of LPs that share this concern are planning to increase or maintain their allocation to PE in Africa in the next three years.

Furthermore, limited exit opportunities, the fundraising environment, and the global macro-economic downturn are viewed by Limited Partners as considerable challenges facing General Partners in Africa over the next three years.

According to the survey, 58% of Limited Partners believe that local capital flows will catalyze the PE industry in Africa, while 58% of General Partners allude that international capital flows will be the catalyst.  Separately, a significant share of Limited Partners (84%) view growth capital as a strategy of interest when investing in African PE over the next three years.

On the flip side, 69% of Limited Partners expect African Private Equity returns to exceed 2.0x over the next ten years. A significant share of Limited Partners (82% and 91%) believe that African Private Equity returns will be similar to or outperform other emerging and frontier markets over the next five and ten years, respectively.

Meanwhile, compared to developed markets, 55% of Limited Partners think African Private Equity returns will be similar to or outperform their developed market counterparts within the next five years, and this figure climbs to 74% when extended to a ten-year horizon.

Finally, two thirds I.e (67%) of Limited Partners that expect returns of 2.0x or higher in the next five years also expect Private Equity in Africa to be more attractive than Private Equity in developed markets within the same time frame.

The Industry Survey also comprises key insights on perspectives towards the impact of COVID-19 on Private Equity portfolios, COVID-induced responses, opportunities and challenges in Africa’s Private Equity industry and attitudes on Environmental, Social and Governance (ESG) criteria, co-investments, exit routes, the macroeconomic environment, and more.

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The Chief Executive Officer of AVCA, Abi Mustapha Maduakor, sad that; “The comprehensive survey and data gather nuanced insights from a broad base of Limited Partners and General Partners with diverse strategies united by our common interest in Africa. Opportunities and emerging trends across the region continue to crystallize and unfold; the industry survey findings show that investors remain confident in Africa as a long-term investment strategy. As a champion and effective change agent for the industry, AVCA looks forward to sharing ongoing research, insights and working more closely with the region to accelerate even more private capital to Africa’s promising markets.”

LIMITED PARTNERS VS GENERAL PARTNERS

Limited partners are investors in the business they have no control of day-to-day operations, and only liable for as much as they invest in the company. They’re considered passive investors because they contribute money to the partnership but don’t have control over decisions whereas General Partners refers to a partnership where all  partners contribute to the day-to-day management of the business. Each partner is entitled the authority to make business decisions and even legally bind the company in contracts. The liabilities, contributions, and responsibilities of the partners are often equal unless stated otherwise.

About AVCA

The African Private Equity and Venture Capital Association is the pan-African industry body, which promotes and enables private investment in Africa.

AVCA plays an important role as a champion and effective change agent for the industry, educating, equipping and connecting members and stakeholders with independent industry research, best practice training programmes and exceptional networking opportunities.

With a global and growing member base, AVCA members span private equity and venture capital firms, institutional investors, foundations and endowments, pension funds, international development finance institutions, professional service firms, academia, and other associations.

This diverse membership is united by a common purpose of being part of the Africa growth story.

 

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