Private equity

Fundraising over time

Before the remarkable market contraction in 2020 and 2021, private equity (PE) fundraising activity across Africa showed strong growth between 2016 and 2019.

By sector

*2021 relates to the six-month period ended Jun30

A trend previously observed in the breakdown of fundraising into investment themes is the high proportion of funding raised for infrastructure themes. The combination of Infrastructure and Energy represents almost half of all fundraising in 2018 and 2019. Of the total USD3.8bn PE fundraising closed in 2019, USD1.6bn (42%) was focused explicitly on the infrastructure & energy sectors. This represents an 18% absolute increase when compared to the fundraising closed in 2018. This allocation dwindled to USD156m in 2021. In February 2022, the draft amendments to South Africa’s Regulation 28, which sets the prudential capital allocation limits for pension funds, specifically addressed investment into Infrastructure. These amendments introduce more effective maximum limits for the trustees of retirement funds to invest for the long term in various forms of infrastructure projects. This change may increase capital flows to this asset class in the future.

The data for 2020 and six months of 2021 shows us that the regional split and the investment themes of funds raised indicate that the market continues to favour generalist funds with a broad regional mandate. This may be due to Africa’s economies remaining largely informal and fragmented. According to the IMF, the informal sector makes up from 20% to 25% of GDP in Mauritius, South Africa, and Namibia, and up to a high of 50% to 65% in Benin, Tanzania, and Nigeria. Along with small, fragmented, and poorly connected markets and the high cost of compliance, these factors limit the number of investable opportunities available to investors. This limitation necessitates a wider mandate to ensure that sufficient opportunities with a desirable risk and return profile can be identified and evaluated.

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