A shortage of skilled talent to manage private equity funds in sub-Saharan Africa is the key concern for investors. Previously, investors were deterred by risks including economics and politics in the region. However, these risks are now viewed as minimal as the region showed resilience in recovering fast from
the global economic crisis.
Investors are now concerned about the ability of GPs to effectively deploy their investments in the local market with good returns. A survey conducted by the Emerging Markets Private Equity Association corroborates this view. Findings of the 2010 EMPEA/Coller Survey indicate that institutional investors consider shortage of experienced GPs as the top primary factor deterring them from investing in Africa.
“I see management as the biggest challenge. It is still not easy to find the right people and sometimes we have to bring in people from outside,” says Hakim Khelifa, a Senior Partner at pan-African private equity firm, Tuninvest-Africinvest Group is quoted by in a report by EMPEA titled Private Equity in sub-Saharan Africa.
Lately, there has been talk of locals who have been educated and gained experience in the diaspora returning home to take up this challenge that is slowing down investor appetite in the region.
At Catalyst Principal Partners, the newest kid on the block in the Eastern Africa private equity scene, most of the members of the senior management team have been hired from the diaspora. However, some analysts say that while the return of highly skilled African professionals from the diaspora is a welcome break, the numbers are still small.
“The diaspora is not returning the numbers required and a lack of senior management expertise is the most acute risk to private equity investing in Sub-Saharan Africa today,” Peter Schmid, a partner at Actis writes in the EMPEA report.
Describing the circumstances that sub-Saharan Africa finds itself with a shallow talent pool as a “real risk,” Mr Schmid argues that the only way to outpace this risk is to cultivate strong and extensive networks.
The EMPEA report states that many of the funds that achieved closes in the first seven months of this year are not only large but are also managed by GPs who have developed track records in the region.
It cites ECP that held the final closing of its ECP Africa Fund III with total commitments of $613 million in July, and emerging markets-focused Global Environment Fund (GEF)’s Africa Sustainable Forestry Fund, which is targeting total commitments of $150 million, reached a first close of $84 million in May.
In the private equity world, track records play a crucial role in drawing commitments from new Limited Partners (LPs), individuals and institutions that contribute capital to funds.
White & Case’s Mara Topping, notes in the EMPEA report that usually, in situations where there could be an overblown sense of risk, investors naturally flock towards that which is familiar.
“The handful of GPs operating in Africa that do have track records are doing very well and in some cases are even over-allocated,” Topping adds.
In cases where LPs may be interested in exploring new markets, most prefer entering hand-in-hand with GPs that have demonstrated that they know, and can operate well within these markets.
However, the report says that there are exceptions to the rule, where “a handful of relatively new vehicles on the scene,” some driven by new teams of industry veterans, have been able to attract funding.
It gives the example of UK-based Development Partners International which closed its African Development Partners I Fund in December 2009 with $416 million in total commitments and Adlevo Capital Managers that reached a first close of $52 million for its debut fund in June 2010.
“However, while such success stories serve as a role model to the growing GP community, for the time being, closes by debut funds, even from seasoned teams such as DPI, remain the exception rather than the rule,” the EMPEA report concludes.
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