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.

Before the remarkable market contraction in 2020 and 2021, private equity (PE) fundraising activity across Africa showed strong growth between 2016 and 2019. The total value of PE fundraising in 2019 reached USD3.88bn, the second-highest year of fundraising since 2010.

Driven by a risk-off environment, the low growth persisted and resulted in a low level of funding. This decrease illustrates just how much the pandemic caused uncertainty, economic distress, and other lingering effects. International lockdowns disrupted trade and massively decreased economic activity. These international events – combined with downgrades, currency devaluations, and revised investment sentiment towards Africa – adversely affected fundraising initiatives.

The significant decrease in the funds raised over the past two years stands in stark contrast to the highs reached in 2019. Fundraising highs in 2015 and 2019 were the result of a handful of large funds achieving their final closes in those years. For example, in 2015 Development Partners International (DPI) announced the final close of their second fund at USD750m, and Helios announced a USD1.1bn final close of their third Africa-focused fund, with both fund managers exclusively focused on Africa. This lumpy nature of fundraising in the market further contributes to the dramatic contraction in fundraising levels.

In October 2021, DPI, via the African Development Partners (ADP) III fund, closed almostUSD900m towards innovation-led African companies. The co-founder and chief executive notes that “Africa remains an exciting investment destination with positive demographics, rising adoption of technology, and rising consumer and business spending.” Interestingly, the focus will be innovation-driven companies leading the continent’s digital transformation with deep integration of impact and ESG, in line with the market focus observed in this report.

The emerging international trend of focusing on Responsible Investing is also playing out in the African market. Of the funds raised in 2020, USD498m, or 38%, was allocated to Impact Fund managers as classified by AVCA. This is a welcomed increase from previously held proportions of 15% in 2017 and 6% in 2018 respectively.

MSCI’s emerging and frontier market index data showed a significant rebound in investor interest in these markets, returning to pre-pandemic pricing levels around August 2020 and February 2021, respectively. This trend continued throughout 2021 and into 2022. However, the change in sentiment has not filtered down to African PE fundraising. The longer-term and illiquid nature of private equity investment, as well as the recent performance of African private equity, may contribute to this divergence.

Pitchbook’s Annual US PE Breakdown reports noted a similar trend in fundraising in the US. Following an all-time high of USD331.5bn in 2019, up 59% from the prior year, PE fundraising also contracted. It remained buoyant in comparison with the African market (at USD251.9bn in 2020, and USD179.6bn for the six months ended June 2021) suggesting a full recovery. Despite the recent macroeconomic turmoil, the fundraising reflects a continuation of the increased interest in alternative investments from investors worldwide.