Private equity firms prefer Africa over peers

Majority of private equity firms in a survey released last week favour Africa as an investment destination over other emerging markets.

The respondents were largely drawn to Africa by potential earnings from the higher economic growth rates forecast for most countries, compared with other developing and developed markets.

The survey involving 48 private equity firms was conducted by RisCura — an investment adviser specialising in emerging markets — the South African Venture Capital and Private Equity Association (Savca), and the African Private Equity and Venture Capital Association.

“The results of the research show that a majority (70 percent) of institutional investors surveyed believe Africa is more attractive than other emerging markets,” Rory Ord, head of RisCura’s private equity valuation business, said on Friday.

Respondents included family offices, endowments, banks, sovereign funds, foundations, pension funds, asset managers, development finance institutions, insurance companies and fund of funds.

Those surveyed have more than $150bn in total global private equity assets under management, and undrawn commitments of $50bn.

The survey echoes a similar finding by the Emerging Markets Private Equity Association (Empea), based in Washington, whose members ranked Africa the most popular private equity investment destination last year. Sub-Saharan Africa attracted $1.6bn in private equity investment last year.

The Empea found that 54 percent of private equity fund managers surveyed — of which 49% were based in North America — planned to begin or continue investing in sub-Saharan Africa over the next two years.

Further, the Ris Cura survey found that 85 percent of respondents planned to increase their exposure to private equity in Africa over the next 24 months, Mr Ord said.

The survey responses indicate that private equity investors are not partial to any one region in Africa, but rather favour economic sectors. Given the continent’s growing middle class and increasing disposable income, the consumer sector is the most appealing.

“This view is evident in recent deal-flow activity, which has favoured assets positioned to benefit from a growing middle class and lively growth prospects,” Savca CEO Erika van der Merwe said on Friday.

Industry, mining and real estate are seen as the sectors least attractive to private equity investors. But respondents were put off by the limited expertise and track record of the African private equity market.