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African private equity funds tops 11 per cent annual return for decade-long period

African private equity performed in line with or ahead of Asian and Latin American private equity during the 10-year periods ending in 2010 and 2008. (Image source: Andres de Wet)

A new index of institutional-quality private equity funds in Africa posted an 11.2 per cent annualised return for the 10 years ending September 30, 2012

The total fund capitalisation is US$7.3bn from 40 institutional-quality private equity and venture capital funds based in Africa that invest third-party limited partner capital. The vintage years covered are from 1995 to 2012.

According to the first quarterly report of the Cambridge Associates LLC African Private Equity and Venture Capital Index, African private equity funds outperformed US venture capital and are roughly in line with the broad Cambridge Associates emerging markets private equity and venture capital index for the most recent 10-year period.

The Cambridge Associates LLC African Private Equity and Venture Capital Index is a collaboration between the African Venture Capital Association (AVCA) and Cambridge Associates, the global investment advisor that maintains databases and tracks performance data of private investments around the world.

Eric Johnson, managing director at Cambridge Associates, said, "The data revealed that for the earlier 10-year periods – for instance, those ending in 2008 to 2010 – African private equity outperformed the 10-year emerging market benchmark.

"Except for the most recent periods, African private equity has performed in line with or ahead of Asian and Latin American private equity."

Johnson said more than 40 per cent of the funds in the African Private Equity and Venture Capital Index beat the broad emerging markets median fund for their vintage year.

"The strongest performing sectors within the private equity funds in the African index were IT and telecoms, industrial, manufacturing and consumer. Other than the consumer sector, all of these have outperformed their other emerging market peers," he said.

Johnson's comments echo those made by Hurley Doddy, CEO of Emerging Capital Partners (ECP), who said recently, "I think telecoms – including services like data and money transfer and infrastructure connected to that sector – will remain a strong growth market and therefore a prime target for the next decade.

"In addition related industries like pay television and other media businesses are at the low levels of penetration that cell phones were at six or eight years ago and are poised for very strong growth."

ECP is a pan-African private equity firm that has raised more than US$2bn for investment across the African continent, including the Francophone regions.
The company has put its investors’ capital to work in more than 40 countries through seven private equity funds and directly supports more than 50,000 jobs. It has made more than 50 investments, and completed more than 20 exits, maintaining a strong portfolio of remaining transactions.

Johnson said African funds from the older, more mature vintage years (1996 to 1998 and 2002 to 2004) have outperformed African, emerging markets and developed markets stocks on a Public Market Equivalent (PME) basis.

"African funds from the 2005 to 2007 vintages are trailing African and emerging markets stocks to date, but are slightly ahead of developed markets stocks on a PME basis," Johnson remarked said, adding that many of the funds in the African benchmark remain early in their lifecycle and are largely unrealised, making comparisons to public markets for more recent vintages less meaningful for now.

A much smaller proportion of African funds are showing a partial or total loss than U.S. venture capital over the vintage years 1995 to 2008, he said.

The African Private Equity and Venture Capital Index comprises 40 institutional-quality private equity and venture capital funds based in Africa that invest third-party limited partner capital. The benchmark excludes captive funds, real estate funds and funds with open-ended structures. The total fund capitalisation is US$7.3bn, and the vintage years covered are 1995 to 2012.

The 40 funds include investments in more than 350 companies headquartered in more than 25 African countries, as well as a small number of Africa-focused companies headquartered outside the continent.

Cambridge gathers data by tapping verifiable data sourced directly from each fund’s financial statements. Additional funds will continue to be added to the dataset over time.

"We are delighted to be working with AVCA to provide the first institutional-quality, pan-African private equity performance benchmark,” said Johnson.

"We believe it will go a long way to help limited partners assess and participate in private investment opportunities in Africa. Without systematic coverage of a broad group of funds – both ‘winners’ and ‘losers’ – it can be hard for limited partners to gauge the landscape and evaluate individual fund managers.

"We look forward to further expanding the dataset of private investment performance in Africa and reporting additional results as the industry continues to build its track record," he added.

Michelle Kathryn Essomé, CEO at AVCA, commented, "This launch marks a monumental moment for African private equity investment. For the first time, investors looking at the continent have a performance benchmark akin to those that well-established emerging markets have enjoyed for some time."

Barnabas Thondhlana

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