EVENT TOMORROW 11 JUNE: Private Equity Africa Awards at The Mayfair Hotel, London – the top event for the African PE community. In the afternoon a limited-space VIP panel discussion on “Strategies for Success: Deal Origination, Valuation and Exits” (14:00-17:00). Awards gala dinner follows from 18:00-23:00. Awards are: Exit of the Year, Portfolio Company of the Year, House of the Year, Deal of the Year (large-, mid- and small-cap categories), Advisor of the Year. For more information and to book places, check the awards website www.peafricasummit.com.

Global institutional investors (“Limited Partners” (LP)) have selected Sub-Saharan Africa (SSA) as the most attractive investment region, according to research from the Emerging Markets Private Equity Association (EMPEA). The leading Private Equity Africa website reports this is the first time the region has beat the leading emerging markets: Brazil, Russia, India and China (BRICs).
According to the press release from EMPEA: “For the first time in the Survey’s history, none of the BRIC markets broke the top three most attractive markets for investment… (The) latest survey of institutional investors reveals that Sub-Saharan Africa, Southeast Asia and Latin America excluding Brazil are poised to see the greatest increase in new private-equity commitments across the emerging markets over the next two years, edging out Brazil, China and India as the most attractive destinations for dealmaking.”
SSA was only 5th in the attractiveness ranking in the 2012 survey. Some 60% of LPs expect returns of 16% or more per year from their SSA investments (68% expect similar high returns from their Southeast Asian investments). According to EMPEA: “Nearly 54% of LPs plan to begin or expand commitments in Sub-Saharan Africa, 49% in Southeast Asia and 46% in Latin America excluding Brazil. Sub-Saharan Africa is poised to see the largest influx of new investors, followed by Turkey and Southeast Asia.”
Southeast Asia and Latin America ex- Brazil came in second and third, respectively, on the attractiveness index. Historically Brazil, China and India have dominated. It is the first time in the survey’s 9-year history that none of the BRICs made the top 3 places on the index. LPs are concerned that there is very hot competition and that prices (entry deal valuations) are very high in countries such as India which is down from 6th to 9th place on the index. The Middle East and North Africa region has dropped to last place. However, Brazil has seen the greatest fall in recent years since being ranked as the most attractive market for investment in 2011.
Read the PEA story, which says that reasons LPs are heading for SSA include the rise in the number if fund managers with track records, the significant investment opportunities, low entry valuations, and fast-growing markets, boosted by strong demographics, economic growth and improved regulation. One institutional investor commented in the survey: “These markets are very attractive because of the growth and greater pool of managerial talent, the development of local capital markets, and the ability to build on lessons learned.”
Nadiya Satyamurthy, senior director at EMPEA, comments: “A growing number of limited partners are now further along in executing their private equity strategies in emerging markets.” he said that many started by aggressively increasing allocations and funneling commitments to the BRIC markets. “Signs that LPs are slowing the pace of their commitments and diversifying beyond the BRICs suggest a maturation of portfolios. We seem to be entering the next stage of growth for the asset class as track records begin to develop across Sub-Saharan Africa, Southeast Asia and parts of Latin America.”
According to PEA’s analysis, SSA’s political risks have also become less of a worry for LPs and only 36% cited this as a deterrent (compared to 66% in the 2012 survey). Investors are also a lot less concerned about the low number of established fund managers (General Partners/GPs) focused on Africa, with only 36% expressing this as a concern, down from 50%. LPs increasingly favour GP teams that demonstrate strong operational expertise in target sectors – a trend across all emerging market regions.
The investors also value the length of the working relationship among GP team members when choosing. However, the LPs are less concerned about the presence of an anchor investor and the names of the other LPs in a fund. For SSA, the LPs continue to favour regional funds, as compared to country-specific funds – a trend observed in other emerging markets regions.
Overall, nearly 60% expect raise their commitments levels to emerging markets up to 2015. The LPs continue to believe that emerging markets private equity will outperform developed regions.
EMPEA surveyed 112 LPs, with disclosed global private equity assets under management of nearly $430 billion and undrawn commitments of over $180bn. The pool included public and corporate pension funds, insurance companies, sovereign wealth funds, banks, asset managers, endowments, foundations, family offices, development finance institutions, multilateral organizations and funds of funds. Here is the link to the full survey.