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Pension funds power Africa’s infrastructure

Here is my article on a critical area for Africa to develop, creating the right atmosphere for productive investments by Africa’s growing pension funds. It is published in African Banker magazine and you can access it on the africanbusinessmagazine.com website here:

The power of pension funds for African infrastructure
By Tom Minney
“Opening the elegant new six-lane toll bridge stretching cross Dar es Salaam’s Kigamboni Creek in April, Tanzania’s President John Magufuli called it “liberation” for citizens.
It represents a $135m investment by Tanzania’s National Social Security Fund, the state-run pension fund, and government. China Railway Construction Engineering Group built the 680-metre bridge with China Railway Major Bridge Group and say it is the longest cable-stayed bridge in East Africa.
It is also Tanzania’s first toll road – which residents say is worth paying for as it makes their lives easier. The development will lead to new residential housing and is hoped to boost tourism in the country.
The World Bank estimates Africa should spend $93bn – 5% of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50bn financing gap to reach this. Local and international pension funds can help fill the gap.
The Bright Africa report by consultancy firm RisCura says that at the end of 2014 assets under management by pension funds across 16 major African markets amounted to $334bn. Some 90% of assets were concentrated in four countries: South Africa (with $258bn) Nigeria, Namibia and Botswana. Assets had grown more than 20% a year in East Africa and 25%–30% a year in Nigeria over the previous half decade.

Potential to drive growth
Pension funds mostly invest in local fixed-income bonds, with regulation a key driver of asset allocation. But as RisCura argues, pension funds are ideal to drive inclusive growth and social stability, including through investing in longer-term projects such as infrastructure: “Local institutional investors lend credibility and a measure of validation, and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.
With longer investment horizons, pension funds can serve as anchor investors for infrastructure and social development projects,” says the report. South African pension funds lead the way, partly spurred by rules that allow them to invest 10% of assets through private equity.

Africa’s $111bn pension fund
The Government Employees’ Pension Fund (GEPF) with R1.6 trillion ($111bn) assets under management in March 2015 reported it had committed R62bn towards “unlisted and developmental assets” in the previous 12 months, including Touwsriver and Bokpoort solar power projects in South Africa; MainOne data and broadband telecommunications in West Africa; pan-African power generation through Aldwych Power; N3TC which operates and maintains 420km of South Africa’s N3 highway; and two hospitals.
Other investments listed include $21.6m into private airport concession TAV Tunisia through the Pan-African Infrastructure Development Fund (PAIDF) managed by Harith General Partners. GEPF invested $2.6bn into the first PAIDF fund by March 2015 and pledged up to R4.2bn for the second by 2020. Five other pension funds also invested in the $630m PAIDF I fund, which will last 15 years and invested into more than 70 African projects. PAIDF 2 recently announced first close after raising $435m, again with pension funds as key investors.
South Africa’s Eskom Pension and Provident Fund (EPPF) in 2014 invested $30m into infrastructure projects through private-equity house Abraaj, based in Dubai, as well as mobile-phone infrastructure through London’s Helios. EPPF chief executive Sbu Luthuli says “We have to diversify” and wants to put more than $100m into infrastructure projects – 1.2% of its total R120bn assets (as of June 2015). GEPF said that it had invested 1% of its assets into African equities outside South Africa at March 2015, compared to a target of 5% (R80bn).

New funds being created
Financial institutions and multilateral lenders are looking to speed up the process. For instance, the AfDB created the Africa50 fund with target capitalisation up to $10bn and says it has secured $500m. For the second round to $1bn it is targeting institutional investors, including African and global pension funds. Kenya’s government and parastatals such as Kengen are leading the way in selling local-currency bonds to finance infrastructure.
The network is growing. Harith works with Asset and Resource Management Company in Nigeria to invest in West African infrastructure and is setting up a $1bn COMESA Infrastructure Fund with PTA Bank for eastern and southern Africa.
In June Harith and its Aldwych arm announced links with Africa Finance Corporation (AFC) to create a $3.3bn power portfolio, supplying 30m people across 10 countries. Andrew Alli, president and chief executive of AFC, says: “By working together we can deliver tangible benefit for Africans, switching their lights on and stimulating positive economic growth on the continent.”

Politics and mistrust
But it’s not always that straight-forward. In February, Nigeria’s minister of power, works and housing, Babatunde Raji Fashola, called on the country’s pension funds, which manage some N5.8 trillion ($18.4bn), to invest more in infrastructure and other development projects. However, later in the year, newspapers reported that no infrastructure projects had been put forward that met the legal requirements of the 2015 regulations on investment of pension fund assets, including a minimum value of N5bn for individual projects and award through competitive bidding to a concessionaire with a good track record.
The Nigerian Labour Congress expressed members’ fears: “The thought of using our pension fund for investment in public-sector infrastructure development is highly frightening given the well-known penchant for mismanagement inherent in public-sector institutions in Nigeria … It is therefore immoral and careless to subject such fund which is the life-blood of workers to the itchy fingers of politicians, no matter how well intentioned.”
Despite the worries, confidence in governance is growing and attention is switching to building the supply of projects. As RisCura’s report notes: “In many countries, assets are growing much faster than products are being brought to market, limiting investment opportunities.”

Projects and stages
Projects typically go through several stages, starting with feasibility studies to create a “bankable” project; then building or developing the project; and finally operating it once it is established, for instance collecting the tolls on a highway and fixing holes. The last stage is usually the least risky and most suited for pension-fund investors.
The Africa50 fund follows other initiatives in funding early-stage projects in order to boost the supply and mobilise more financing for later stages. Kigamboni bridge took more than two decades. Africa’s fast-growing pension funds need a faster pipeline of investible and well-run projects.

Kigamboni Bridge, Dar es Salaam. Photo Daniel Hayduk, from Nairobi Wire

What are Africa’s pension funds investing into?

Do you agree or disagree with this view? Comments are welcome below

Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.

For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.

Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.

What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.

The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.

Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.

Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

What to invest in?

The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?

Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.

Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.

Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.

Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.

Private equity and infrastructure

The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.

table50313_pensions

International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.

Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.

Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?

For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.

Capital markets course offered in Nairobi

The Nairobi Securities Exchange is calling for applicants for a “certified capital markets specialist” course, to be held on 16-20 March at the Ole Sereni Hotel, Nairobi. Registration has been extended to 10 March. Places cost $1,995 + VAT.
The course for 30 participants is organized by Intellisys Business Solutions Ltd in partnership with the International Association of Finance Management, headquartered in Luxembourg. According to its website it is a global organization that provides financial training courses to professionals, institutions and corporations around various locations and programmes in banking, insurance, capital markets, wealth management, risk management and project finance.
The course is facilitated by Michael Preiss, a member of the Interfima management committee. According to his bio he is a senior investment advisor based in London, advising ultra high net worth and key clients in Russia, Middle East and Africa. He has also worked at HSBC Private Bank in Dubai and the Middle East and Standard Chartered Bank in Hong Kong and Singapore.
There is not an obvious connection with the regional-focused training courses organized by the Securities Industry Training Institute (SITI) and funded by International Finance Corporation as part of its Efficient Securities Markets Institutional Development (ESMID) programme (www.ifc.org) with the Swedish International Development Authority and the World Bank. According to this story, this was launched in 2009 and is based in Kampala, aiming to offer certified courses that would be recognized across the region to thousands over a 10 year period.

Nairobi Securities Exchange CEO Peter Mwangi moves to Old Mutual Kenya

The well-respected CEO of the Nairobi Securities Exchange (www.nse.co.ke), Peter Mwangi, is to take up a new job as Group CEO at financial services company Old Mutual Kenya with effect from 1 October. Mr Mwangi has served at the NSE since 24 November 2008 and his contract was renewed in 2011 but according to regulations a CEO of an exchange can only serve 2 terms.

Mr Mwangi and his top team have made huge progress in boosting the activity and standing of the NSE. Kenya’s Standard reports that major strategic projects implemented while he was CEO include:

  • Trading treasury bonds on the automated trading system,
  • Reducing the trading and settlement cycle to four days
  • Demutualizing the exchange and selling its shares to the public.

Local press reports that in a statement sent to newsrooms Mr Mwangi says he expects the bourse to build on the foundations it set to be one of the most efficient and well capitalized exchanges on the continent.

Old Mutual continues in expansionary form in Africa, and an analyst reports: “Old Mutual has been accelerating its growth agenda within the African continent, expanding its footprint both organically and inorganically and Mr. Mwangi’ s appointment comes at an exciting time for the Group as whole as he will be in charge of spearheading Old Mutual agenda in this region. In 2013, the Group announced that it plans to invest $500M in East and West Africa, and we have already seen this as the Group has established operations in Nigeria and Ghana. In Kenya, the Group acquired Faulu Kenya which is in the process of been integrated in Old Mutual’s operating model.”

Tavaziva Madzinga, Old Mutual Africa Chief Operations Officer, was quoted on CapitalFM: “With the Group’s focus on growing in East Africa, and Kenya in particular, Mwangi will guide the delivery of Old Mutual’s commitment to provide affordable insurance and banking solutions to millions of Kenyans.”

Peter Muthoka, Chairman of the Board of Directors of Old Mutual was reported as saying: “The importance of our customer cannot be emphasised enough. We are dedicated to our vision of becoming our customers’ most trusted financial partner and we look forward to working closely with Mr Mwangi in serving Kenyans to empower them financially to achieve their goals.”

According to his profile on Businessweek: Before joining the NSE Mr Mwangi had been CEO and Managing Director of Centum Investment Company, (formerly, ICDC Investment Company until it changed its name in 2008) from December 2004 to October 15, 2008. He had joined been company secretary from 2000 to 2004 and has also been Investment Manager. His working career began as a Technical Officer in the Kenya Air Force, where he was involved in the maintenance of avionic communication systems and the development of the Air Force’s information and communication technology (ICT) strategy.

His degree is BSc in Electronic Engineering from University of Nairobi. He is also a Member of Certified Public Accountant of Kenya (ICPAK) and the Institute of Certified Public Secretaries of Kenya (ICPSK) and is a Chartered Financial Analyst.

He serves as a Director of UAP Insurance Sudan Ltd., Kisii Bottlers Limited, Mount Kenya Bottlers Limited, Rift Valley Bottlers Limited, Eveready Batteries Limited, KWAL Holdings Limited and Central Depository & Settlement Corporation Limited. He serves as a Director of Nairobi Stock Exchange Ltd., and Wildlife Works Inc. He is also a member of the Institute of Directors (IOD).

Peter Mwangi

Peter Mwangi

9 African IPOs in first half of 2014 raise $808m, passing all 2013

pic: Tom Minney

Arabian Cement IPO on Egyptian Exchange in May was 18x oversubscribed. pic: Tom Minney


Initial public offers (IPOs) on African stock exchanges for the first half of 2014 has raised capital totalling $808.5 million, compared to a total of $757.5m raised throughout 2013. The data show there have been 9 African IPOs in 2014 to 30 June, compared to 18 in 2013 and 10 in 2012 on stock exchanges in Casablanca, Dar es Salaam, Johannesburg, Nigeria and Tunisia when the total raised was $342.6m.
The figures are given in a blog in the Wall Street Journal, citing figures from consultant EY.
According to the WSJ blog, domestic and international pension funds and other corporate institutional investors are putting more cash into African markets. It highlights new money from Africa’s fast-growing domestic pension funds and growing confidence in African frontier market equities, quoting Joseph Rohm, portfolio manager at Investec Asset Management: “These are nascent capital markets and they are illiquid markets. But what has been encouraging is that, for the first time in a long time, we are starting to see more capital raisings.”
He attributed the IPO increase to an earlier boom in private-equity investments: “We have known for a long time that the amount of private equity in African markets—and more broadly in frontier markets—is unprecedented and we are starting to see those opportunities coming to public markets.”
Bourse de Tunis saw 2 IPOs in 2012, but this was up to 11 last year and 2014 is also looking strong. WSJ[ blog cites Slim Feriani, chief executive officer and chief investment officer of Advance Emerging Capital, a Tunisian, who said: “In the next 5 to 10 years we are bound to see more IPOs. As it stands, some of the hidden gems are still in private hands,”
The blog also quotes Razia Khan, head of African region research at Standard Chartered, who said Africa’s IPO activity tends to be concentrated in key markets with most big deals so far in 2014 in North Africa. She added the current listing boom is evidence that the African markets are still recovering from the shock of the financial crisis in 2008: “The IPO activity lagged this recovery in growth—it’s not surprising that we’re seeing a rise, but the scale of it is interesting.”

Women scoop African Banker Awards 2014

African Banker Awards 2014 (credit IC Publications)

African Banker Awards 2014 (credit IC Publications)

Women triumphed at this year’s African Banker Awards 2014: Vivienne Yeda, Director General of the East African Development Bank, scooped the award for African Banker of the Year; Linah Mohohlo of the Bank of Botswana was named Central Bank Governor of the Year; and Elizabeth Mary Oleko, chairperson of the Kenya Women Finance Trust, scored the Lifetime Achievement Award.

President of Rwanda HE Paul Kagame received a Special Recognition Award for his leadership and vision. He thanked Rwandans who have sacrificed a much to put Rwanda where it is today: “Rwandans have made me the kind of leader that I am and they have given me the strength that has added up to taking our country forward.” Bob is back, as Bob Diamond the former CEO of Barclays Bank who quit after the bank faced global scandals and fines, was in the deal that was awarded equity deal of the year. Andrew Alli of the African Finance Corporation won African Banker Icon.

This year the judges – I was again privileged to be a judge for some categories – again awarded Nigeria’s GT Bank as African bank of the year. South Africa’s Rand Merchant Bank is investment bank of the year and South Africa’s Nedbank won both an award for innovation in banking and the socially-responsible bank of the year. Mastercard won a well-deserved award for financial inclusion.

Investec Asset Management won fund of the year and State Bank of Mauritius won retail bank of the year. Banque Islamique de Mauritanie won best Islamic finance initiative.

The awards also recognized smaller financial institutions and those pioneering in challenging environments. Trust Merchant Bank, an independent commercial bank operating in DR Congo, won Best Bank in Central Africa. Ecobank Mali won Best Bank in West Africa after Mali successfully transitioned back to its historic democracy after a 2012 coup that crippled the economy. Stanbic Zimbabwe beat tough competition from bigger banks to become Best Bank in Southern Africa, despite challenging economic conditions. Bank of Kigali scored in East Africa and Morocco’s Banque Centrale Populaire in North Africa.

Two landmark deals were rewarded. Citigroup Global Markets won equity deal of the year for helping Bob Diamond, previously of Barclays Bank, in the $325m initial public offer (IPO) of his new investment vehicle, Atlas Mara Co-Nvest. Standard Chartered Bank won debt deal of the year for the $3.3bn finance facility for Dangote Group petrochemical plan, building the continent’s largest refinery, petrochemical and fertilizer plant.

The winners of the 8th African Banker magazine’s African Banker Awards were announced at a prestigious ceremony on 21 May at the Kigali Serena Hotel, linked to the African Development Bank summit. Among the guests were HE Festus Mogae, former President of Botswana, and many ministers of finance and bank CEOs were also present.

Omar Ben Yedder, Publisher of African Banker and IC Publications, commended the achievement by banks: “Here in Kigali.. we have witnessed the transformation of a country. Since we have launched the awards we have witnessed the transformation of an industry. There is no room for complacency because there is much room for growth and development to achieve the transformation we all desire and work towards. But seeing local African banks finance and structure international deals is a step forward and unimaginable a decade back. And I am delighted to see three women pick up three coveted individual awards. Congratulations to them all!”

The African Banker Awards are organized by African Banker magazine and BusinessinAfrica Events (BIAE). It is a landmark event that celebrates excellence and best practices in African banking and finance.

Winners
Special Recognition Award: HE President Paul Kagame

Lifetime Achievement Award: Elizabeth Mary Okelo

African Bank of the Year: GTBank

African Banker of the Year: Vivienne Yeda, Director General, East African Development Bank

African Banker Icon: Andrew Alli, CEO, Africa Finance Corporation

Central Bank Governor of the Year: HE Linah Mohohlo, Botswana

Finance Minister of the Year: Hon Armando Manuel, Angola

Investment Bank of the Year: Rand Merchant Bank

Award for Innovation in Banking: Nedbank

Socially Responsible Bank of the Year: Nedbank

Award for Financial Inclusion: MasterCard

Deal of the Year – Equity: Atlas Mara Co-Nvest, Citigroup Global Markets
Deal of the Year – Debt: Financing Facility, Dangote Group Petrochemical Plant, Standard Chartered Bank

Fund of the Year: Investec Asset Management

Best Retail Bank in Africa: State Bank Mauritius

Best Islamic Finance Initiative: Banque Islamique de Mauritanie

Best Bank in North Africa: Banque Centrale Populaire
Best Bank in Southern Africa: Stanbic Zimbabwe
Best Bank in East Africa: Bank of Kigali
Best Bank in West Africa: Ecobank Mali
Best Bank in Central Africa: Trust Merchant Bank

Mortgage Bank of the Year: Nigerian Mortgage Refinance Company

Rise of pension giants set to transform investment in Africa

New giants are arising in African investments – the domestic pension funds. In Nigeria the National Pensions Commission (PenCom) estimated registered pensions to be worth US$14bn in June 2011, with asset values up by 8% in three months; Namibia’s Government Institutions Pension Fund alone is worth some $6bn; South Africa’s pension funds grew at a compound annual growth rate of 14.3% in US dollar terms over 10 years to December 2010, including over 28% in 2010 and Tanzania’s pension industry was audited at $2.1bn for 2010, and growing by 25% a year.

The number of pensioners is set to soar, according to United Nations figures, as the number of people over 60 years in Africa will rise from 55m in 2010 to 213m by 2050, compared to 236m Europeans over 60 years old by 2050. Current pension funds cover only 5%-10% of Africans ranging from 3% in Niger but it used to be 80% in North African countries such as Egypt, Libya and Tunisia. Pensions are not available at all in some countries.

Regulatory reforms are driving the growth of African pensions. Recent reformers include Cote d’Ivoire, Gabon, Kenya, Nigeria, Senegal and Uganda. Ghana created a National Pensions Authority with a 2010 act. Reform in Kenya, including investment guidelines and a new regulator, resulted in strong growth and good investment returns. Tanzania passed the Social Security Regulatory Act in 2008. The rising pension industry is likely to boost fund management and equity industries, exits for private equity and even to fill some of the $45bn annual funding gap for infrastructure. For instance, In January 2012, Tanzania’s National Social Security Fund signed an agreement to finance 60% of the $137m cost of building Kigamboni Bridge. South Africa’s $130bn Government Employees Pension Fund is a major investor in the Pan-African Infrastructure Development Fund which raised $625m in 2007 and is targeting $1bn on its second offering.

For more details on Africa’s pension industry, please check my article published in The Africa Report magazine and website, here is the link www.theafricareport.com and for brief profiles of 6 giant African funds, check here.

African Venture Capital Association (AVCA) to provide PE data

** Save the date: AVCA’s 9th conference will be in Accra, Ghana, from 22-24 April, with extra days for GP and LP training (announced today 2 Nov). More details will be available soon **

The African Venture Capital Association (www.avca-africa.org) and Cambridge Associates (www.cambridgeassociates.com), a global provider of independent research and investment advice, have agreed to work together to provide extensive, independent aggregate African private equity and venture capital benchmark data and statistics to AVCA members and other industry participants.
The 2 organizations will issue quarterly performance data which will include African PE and VC industry returns, compared to other market indices. Returns data will be aggregated to protect the confidentiality of individual funds and their underlying portfolio investments. Vintage year returns and aggregate portfolio returns by industry will be reported where the sample size is sufficiently robust to allow disclosure without compromising confidentiality. Cambridge Associates has been advising institutional and private clients on alternative assets since the 1970s and derives its PE and VC benchmarks from financial information in its proprietary database of institutional-quality PE and VC funds, one of the largest such data repositories in the world.
Michelle Kathryn Essomé, AVCA CEO (see below), commented in a press release: “AVCA is absolutely committed to promoting the dissemination of robust, reliable data on private equity and venture capital in Africa. We are thrilled to collaborate with Cambridge Associates, as they have demonstrated the necessary technical expertise, knowledge of the continent, and global track record to meet this objective. I am confident that this will help promote additional transparency and independent benchmarking to the benefit of all industry stakeholders.”
Cambridge Associates will provide the data to AVCA as a service to its members and the global PE and VC industry overall. Cambridge Associates works closely to grow its coverage of the emerging markets PE and VC industries with the international development institutions that are major limited partners in these markets, and also partners with the Emerging Markets Private Equity Association (EMPEA).

More awareness
Ralph Jaeger, senior research consultant and co-head of international private equity and venture capital research at Cambridge Associates said: “We are delighted at the opportunity to work with AVCA to broaden and deepen the industry’s awareness of private equity and venture capital in Africa. Cambridge Associates continuously seeks to expand our manager research coverage to create benchmarks that can serve as valuable tools for the industry. Assessing the attractiveness of private equity and venture capital in Africa will allow investors to better identify local and regional investment opportunities.”

AVCA and Cambridge Associates
AVCA is a non-profit association whose aim is to promote, develop and stimulate private equity and venture capital in Africa through research, advocacy, training, networking and the dissemination of industry best practices. It was established in 2002 and today represents African private equity and venture capital firms, institutional investors, foundations, international development institutions and global professional service firms, amongst others. AVCA.
Cambridge Associates was founded in 1973 and gives investment consulting, independent research and benchmarks, performance-reporting and outsourced portfolio solutions, across all asset classes, to over 900 institutional investors and private clients worldwide. It has more than 200 professionals dedicated to consulting, research, and performance reporting on alternative assets and compiles performance results for more than 4,400 private partnerships and more than 60,000 portfolio company investments to publish its proprietary private investments benchmarks.

AVCA’s new CEO
The African Venture Capital Association (AVCA) announced the appointment of Michelle Kathryn Essomé as its CEO in September, in a press release. She has nearly 20 years of investment-banking experience and has held a range of marketing and origination roles in equities, fixed income, corporate finance and investment management with Merrill Lynch, Goldman Sachs, JPMorgan, Lehman Brothers and Nomura. Michelle holds an MBA in Finance from Columbia Business School, where she was a Robert F. Toigo fellow, and a BBA in Finance from Howard University. She has worked in the US, UK and France and is fluent in French. She commented: “This is an incredibly important time in the development of the African private equity industry and AVCA has a crucial role to play in supporting GPs and promoting the asset class. I am absolutely delighted to be able to harness the support of the African GP community, our DFI partners and peer associations to build a strong, member-centric association.”
“As CEO, my commitment is to ensure AVCA provides consistent, high value services to our members and acts as a catalyst for the development of private equity in Africa.”
AVCA, which is co-chaired by Tshepidi Moremong, also welcomes 2 new prominent members to its board. Runa Alam has joined the board as a co-Chair. She is a co-founding partner and CEO of Development Partners International LLP. Simon Walker has been appointed a Special Advisor to the board. Simon was CEO of the British Private Equity & Venture Capital Association (BVCA) from 2007 to 2011 and was recently appointed as the Director General of the Institute of Directors. For more details of their backgrounds, see the press release.

Working with BVCA
In August, AVCA entered into a memorandum of understanding (MoU) with BVCA to boost the implementation of its re-launched strategy across Africa, according to a report on www.privateequityafrica.com. AVCA is to get technical support from the BVCA including expertise in training African private equity fund managers and other professionals. AVCA will also be able to increase training to pension funds and other institutional investors and to encourage local institutional participation, an initiative supported by the Commonwealth Secretariat.

Private equity in Africa
According to AVCA: “Private equity in Africa has a very important role to play in building better, more sustainable companies, creating jobs and delivering genuine economic growth. The continent’s burgeoning middle-class combined with a growing consumer base and greater political stability is making Africa an attractive investment destination.
“Average economic growth in the region reached 5.8% between 2000 and 2008, more than the global average of 4%, driving interest from global private equity houses. In the first half of this year, US$1.1bn was raised by Sub-Saharan African funds.”

Mobius remains bullish on Nairobi Securities Exchange, says FT

Mark Mobius, the veteran emerging markets investor and head of Templeton Emerging Markets (www.franklintempleton.com), is bullish about the Nairobi Securities Exchange (www.nse.co.ke), although it is the worst-performing stock market in sub-Saharan Africa this year, according to an article on 27 October in the UK’s Financial Times.
According to the article, by Katrina Manson: “A long-term investor, Mr Mobius makes his money from yo-yoing frontier markets. Kenya’s has see-sawed between losses of 41.4% after post-election violence in 2008 to best sub-Saharan performer excluding South Africa last year, with a rise of 28.3%. Domestic investors tend to have both less money and less time to play with.” She also cites Aly-Khan Satchu, chief executive of Rich Management (www.rich.co.ke), a Kenyan financial services firm as saying the 2011 collapse is a “rout”. Domestic confidence is low, including among many of the 800,000 people who invested into Safaricom’s 532% subscribed IPO (KSh5 in the 2008 IPO, KSh3.05 at present).
Kenya has seen currency weakness, foreign capital flight, high inflation (it was 17% in September) and drought. The NSE has seen big cuts in volumes and much less participation by foreigners, who used to dominate trading, partly because of a global flight from risky assets. Share price indices have slid, losing the strong gains of 2010. Local investors see better gains from bonds, real estate and family firms.
The IPO of British American Investment Company Kenya only achieved 60% of its target (as reported on this website) and Kenya Airways seems to be holding back a share offer in which it wanted to raise $250 million for expansion. According to the article, Satchu said: “You can’t be issuing IPOs that flunk at the first hurdle. There has not been a successful IPO since Safaricom and that has impaired the stock market. They need a flagship discounted offer and will languish until they do it. Right now, the government couldn’t raise tuppence.”
The also article quotes Stella Kilonzo, head of the Capital Markets Authority (www.cma.or.ke), as blaming the stressed economy. She says there have been 3 years of reforms to boost disclosure and set more stringent requirements and these will eventually pay off. This year the NSE was renamed a “securities” rather than “stock” exchange in anticipation of a new bond index, futures and derivatives trading, exchange-traded funds and a new small and medium sized business index among others. If these come into operation, diversification could help the market.
There is still a cloud over the bourse from a scandal after stockbroking firms collapsed owing their clients money, some after allegedly trading their clients’ money illegally. No-one has yet gone to prison although court cases continue, and not everyone has been compensated, partly because the compensation fund does not have enough resources. Ms Kilonzo says regulation is now tighter.
Reportedly, a court case against the CMA by a collapsed brokerage firm that has been under statutory management since 2007 last month halted a plan to demutualize the NSE, including selling part of it and listing its shares on the Nairobi bourse. According to some analysts, demutualisation could help clean up the market by separating stockbrokers from the exchange’s owners.
Sentiment may be changing, after the Central Bank of Kenya (www.centralbank.go.ke) moved aggressively to push up interest rates by 4 percentage points this month, which may stabilize the currency and bring back investors. Good rains and strong investment in infrastructure could fund growth in 2012, although worries remain about elections.
Manson quotes Mobius: “People are fearful of coming in, so whoever goes there makes a bundle. We may go and buy more at a cheaper price.” The Frontier Markets Fund is invested in Kenya Airways and Safaricom.

Africa is ready for private equity, says EMPEA/FT summit

Government leaders, regulators and decision-makers across Africa recognize the success of private equity in growing companies, creating jobs and developing infrastructure. They are actively considering ways of encouraging flows of capital, both international and domestic, into private equity. This is one of the messages from the 3rd annual “Private Equity in Africa Leadership” Summit, co-hosted by the Emerging Markets Private Equity Association (www.empea.net) and the Financial Times publication, “This is Africa” (www.thisisafricaonline.com).

Babatunde Raji Fashola, Governor of Lagos State, was one of the key speakers and told the conference: “Returns are attractive, the possibilities are endless and we are ready”. Other speakers included Tendai Biti, Minister of Finance, Zimbabwe; pensions representatives from Ghana, Botswana, Kenya, and Nigeria; regulators from South Africa and Brazil, as well as leading African fund managers and global institutional investors. There were over 300 delegates from 30 countries.

Sarah Alexander, President and CEO of EMPEA said: “It’s clear from our Private Equity in Africa Leadership Summit that investors are clamoring for information and seeking a better understanding of the opportunities in the continent. It is also promising that African leaders and regulators are beginning to recognize the long-term economic impact of private equity and are encouraging investment.

“EMPEA will continue to play a key role in working with government and industry leaders, regulators and investors to facilitate a better understanding of the asset class and the opportunities in Africa.”

The 19 October conference in London had standing room-only attendance and very interactive question and answer sessions.

EMPEA announces the appointment of Okechukwu (“Okey”) Enelamah, founder and Chief Executive Officer of Lagos-based private equity firm African Capital Alliance (ACA), to its Board of Directors. This further deepens the representation of African private equity investors among the industry body’s global leadership. EMPEA Chairman Jeffrey Leonard commented: “Africa plays a big part in the emerging market private equity story, and we are fortunate that such an experienced and committed individual will help EMPEA further serve the needs of our growing and dynamic member community.” Okey Enelamah responded to the news, “I am honoured to be joining a Board of such dedicated industry leaders and I look forward to supporting EMPEA in its mission to further promote private equity investment in the Africa region in particular.”

The Private Equity in Africa Leadership Summit in London also saw EMPEA play host to its second Africa Council meeting. This draws together some of the top luminaries in private equity investment into Africa: Runa Alam – Development Partners International (DPI), Yvonne Bakkum – FMO, J. Kofi Bucknor – Kingdom Zephyr Africa Management, Ngalaah Chuphi – Ethos Private Equity, David Creighton – Cordiant Capital, Thierry Dalais – Metier/Lereko Metier, Hurley Doddy – Emerging Capital Partners (ECP), Hisham El-Khazindar – Citadel Capital, Roderick Evison – CDC Group plc, J-P Fourie – South African Venture Capital & Private Equity Association (SAVCA), Murray Grant – Actis, Richard Kramer – African Capital Alliance (ACA), Gloria Mamba – Development Bank of Southern Africa (DBSA), Henry Obi – Helios Investment Partners, Ziad Oueslati – Tuninvest-Africinvest Group, Soula Proxenos – International Housing Solutions, Martin Poulsen – African Development Bank, Davinder Sikand – Aureos Capital, Graham Thomas – Standard Bank, Paul E. Tierney – Development Capital LLC and David Wilton – International Finance Corporation.

EMPEA is an independent, global industry association that works to catalyze private equity and venture capital investment in the emerging markets of Africa, Asia, Central/Eastern Europe and Russia/CIS, Latin America, and the Middle East. EMPEA’s 300 members represent a broad array of private equity fund managers, institutional investors, service providers, and other key stakeholders in the industry, representing nearly 60 countries and over US$1 trillion in assets under management.

Echoing some of the themes discussed at that meeting, Sarah Alexander, President and CEO of EMPEA, can be viewed on CNBC Africa/ABN Digital commenting on why the “time is now for Africa,” here.