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Private equity fundraising over time

The increase in private equity fundraising in 2015 is evidence of the strong interest in investing in Africa’s real economy, despite the recent turmoil in which many African countries find themselves. In the face of the decline in commodity prices, oil in particular, currencies have come under strain impacting liquidity and trade. The slowdown in the growth of emerging market economies in general, has not inhibited the ability of African investment managers to attract significant amounts of capital for the larger Pan-African funds as well as Sub-Saharan Africa funds. Some of the largest African private equity funds seen to date were closed in 2015, including Helios Investors Fund III ($1.1bn), Abraaj Africa Fund III ($990m) and African Development Partners Fund II ($725m). Investors making commitments to Africa may be flocking to these experienced managers as a way of mitigating their risk, knowing that the next few years are bound to be a more difficult time for the continent.

It is clear from the oscillation in capital raised over recent years that the industry goes through phases of fundraising, investment and exits; and it is expected that 2016 will show lower values of capital raised after the strong activity in 2015. It is also worth noting that the graph below allocates capital raised in the year of the fund’s final close (Source: AVCA Private Equity Data Tracker). There are other sources that show a slightly different picture as they allocate capital raised to the year in which the funds reached first, second and final close respectively (EMPEA and Preqin). The major difference in the EMPEA data is that the Helios Investors Fund III was recorded at first close, which occurred in 2014.

The size of African funds is quite varied depending on the regional focus of the fund. In regions where private equity is less developed, such as East and West Africa, the size of transaction opportunities is generally smaller, and capital is raised with this in mind. In these regions, it is quite common to find fund sizes of less than $50m, and only approximately 30% of funds in East Africa and 40% in West Africa are greater than $200m. In Southern Africa (including South Africa), 74% of funds are greater than $200m as the market is more developed and companies are therefore larger and can handle larger transactions. In Pan African funds, it is not feasible to raise a fund of less than $50m in size, as the cost of executing a fund with continent-wide expertise and presence is much greater. Almost all Pan-African funds have commitments of greater than $200m, meaning that Pan-African funds are chasing much larger transaction sizes than regional funds.

Next: Private equity geographic focus