Edition: July / September 2016


Private equity investment offers an ideal vehicle,
suggest Patrick Mamathuba and Herman Marais*.

Economic growth prospects in Africa remain compelling when compared with developed markets. This is despite recent setbacks in oil-producing countries such as Nigeria and Angola as well as structural constraints on growth in SA. Many economies in Sub-Saharan Africa are continuing their 4%-6% annual gdp growth trends of recent years, far better than that of developed markets.

Private equity is an ideal vehicle to access investment opportunities across Africa, especially as listed equity markets in the rest of Africa are fairly limited given their lack of depth and liquidity. Private equity funds have historically delivered higher returns than the conventional equity market.

The average net internal rate of return (IRR) for private equity in SA was 19,1% for the 10 years to end-December 2014. In comparison, the FTSE/JSE All Share Index (Alsi) was 18% and the SWIX was 18,6%, according to the latest Riscura SA Venture Capital/Private Equity Association performance survey.

This picture is largely mirrored by the performance data on the private equity asset class in broader Africa. Africa private equity has outperformed the global MSCI index by two percentage points over the 10-year period to 2015. This outperformance becomes even more pronounced when considering the performance of private equity transactions in the middle and lower middle market as well as the performance of investment funds specialising in selected sectors.

The prospect of gaining an edge in private equity investment in Africa is a reason that STANLIB has partnered with the founders of Agri-Vie Investment Fund, an African private equity fund focused on the food and agribusiness sector, to form EXEO Capital. This new entity is an Africa-focused private equity partnership that will allow both parties the opportunity to expand their alternative investment offerings.

Mamathuba and Marais . . . everybody gains

The partnership adds private equity to STANLIB’s alternatives offering. It includes Infrastructure, High Yield Credit and Direct Property investment capabilities. For the Agri- Vie founders, the EXEO Capital partnership opens doors to business networks in the more than 10 African countries in which STANLIB is represented as well as a path to strategic diversification into other lucrative investment sectors.

The first US$100m Agri-Vie Fund is invested in 12 food and agribusiness deals across East Africa and the Southern African Development Community. EXEO Capital will manage the Agri-Vie Fund II, expected to launch in mid-2016. EXEO Capital’s choice of the Africa food and agri-business sector as it first investment theme is in line with fundamental growth trends. Growing populations and an expanding middle class, combined with the trend towards urbanisation, are all fuelling demand for food and agricultural products while putting pressure on global food security.

The World Economic Forum predicts that by 2050 a global population of 9bn will demand 70% more food than is consumed today. Meanwhile, Africa is expected to double its population to 2bn by 2050.

If you are invested in pension funds, you may be indirectly benefiting from investments in private equity. Regulation 28 of the Pension Funds Act regulates the allocation of pension fund investments into different asset classes. In 2011, revisions to this regulation allowed for pension fund trustees to allocate up to 10% of assets under management to private equity.

By finding a variety of ways to invest in Africa, investors contribute to Africa’s growth while earning good returns. It’s a win-win scenario all round.

* Mamathuba is the chief investment officer for alternative investments at STANLIB. Marais is the managing partner at EXEO Capital and co-founder of Agri-Vie.