"Intentional" investing highlighted at recent AVCA conference
The AVCA conference in Senegal highlighted a number of themes, such as the effects of Covid, intentional investing and inclusivity
It was a wonderful experience connecting in person with members of Africa's private equity (PE) industry again at the African Venture Capital Association (AVCA) conference held in Dakar from 25 - 28 April 2022.
The African PE Industry has shown great resilience during the pandemic. This is supported by the AVCA 2021 African Private Capital Report, which shows that private capital fundraising in Africa last year reached record levels of USD 4.4 billion, with a record 429 investments being made. Many lessons were learnt during this post-Covid resurgence. There were casualties, but the general consensus is that those fund managers that have survived have emerged in a far stronger position, which is good for the industry.
A key take away is that efficient portfolio construction has become more critical than ever before. Managers that can create a balanced portfolio and ensure they include companies from resilient sectors, such as food security, healthcare, and ICT, will stand a better chance of surviving not only pandemics but any future financial crisis.
We cannot mention a post-Covid resurgence without acknowledging the contribution by DFIs that have continued to invest strongly in Africa's private equity industry. This is expected to continue in future and is clearly driving the growth of the industry. However, concern was raised about the industry's reliance on DFIs, and several managers are actively targeting and attracting local pension fund investment as an alternate and sustainable source of funds.
The challenges pension funds experience in investing in private equity are well ventilated, however, in future we expect African institutional investors will collaborate in investments, for instance by sharing due diligence and other costs to spread the investment risk.
As expected, ESG was topical. As a result of the prevalence of DFI investment on the continent and their strict ESG requirements, it is not surprising that African funds are more advanced than global PE funds as far as ESG policies and protocols are concerned. In line with the ESG movement, we expect DFIs will allocate more funds to ESG-compliant fund managers. Climate funds will remain great candidates for a large part of that allocation, but inclusivity will also be a focus. One in four entrepreneurs in Africa is a woman, therefore investors see this as a huge opportunity.
West Africa certainly captured the imagination. Last year, West Africa took a 33% share of deals by volume. This represented a marked increase for West African investments.
Underlying all the discussions was the recurring theme of "intention". African fund managers must be intentional about inclusivity (which includes diversity) and practically consider ways they can extract value from diverse teams (gender and localisation included); be intentional in creating a diverse portfolio; be intentional about their unique contribution to impact investments; and have practical intent about exits.
In summary, 2021 was a record-breaking year for private equity on the continent. The PE industry's resilience and outperformance brings much-needed optimism. We are hopeful that the industry will thrive beyond 2022, and this will probably be anchored by the ICT, healthcare, infrastructure, and consumer sectors. This will be spurred on by regional co-ordination and initiatives such as the much anticipated and welcomed African Continental Free Trade Area. It will be interesting to see if these themes and optimism carry through to the SAVCA conference at the end of May.
By Michael Denenga & Ziyanda Ntshona, Partners at Webber Wentzel
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