January 30, 2013
Interviewed by: David Snow
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Investable Africa

More and more private companies in Africa are becoming “investable” just as more and more institutional capital is forming to target private equity across the continent, according to Runa Alam, Co-Founding Partner and CEO of Development Partners International as well as chairperson of the board of the African Venture Capital Association. Alam also describes an increasingly sophisticated population of African pension funds and other local institutional investors that are ready to commit capital to the asset class. Finally, she describes her goals for AVCA and why even single-person entities should join.

More and more private companies in Africa are becoming “investable” just as more and more institutional capital is forming to target private equity across the continent, according to Runa Alam, Co-Founding Partner and CEO of Development Partners International as well as chairperson of the board of the African Venture Capital Association. Alam also describes an increasingly sophisticated population of African pension funds and other local institutional investors that are ready to commit capital to the asset class. Finally, she describes her goals for AVCA and why even single-person entities should join.

David Snow, Privcap: We are joined today by Runa Alam of Development Partners International. Runa, welcome to Privcap today. Thanks for joining us again. You were part of a Privcap program about Africa about a year ago, and so I’m fascinated to hear from you as an investor across Africa. What has changed, if anything, over the past year by way of the opportunity to put private equity to work?

Runa Alam, Development Partners International: Sure. I think not a huge amount has changed. But I would point two things that maybe there’s a trend. The first is that I think Africa is beginning to appear on classic, private-equity LP’s schedules or agendas. So a lot more pension funds, endowments, professionally-run family offices, and the sovereigns are looking at Africa when they weren’t before. A lot of them are just starting to map the space and think about, OK, how do we enter, and how do we go there? But that’s a first, and I think the trend is increasing there.

The second thing, I would say, is that the number of investable companies coming from the number of investable industries is only increasing in Africa. So for instance, in the past, we haven’t seen that many investable education companies, but that industry is growing. Agribusiness is starting to mature, so it is starting EBITDA and income is producing. So it’s slowly getting there. And there are several other industries that are growing up and growing up fairly fast.

Snow: Well, it’s good news that as more capital appears to be forming for Africa, more investable companies- appear to be forming, so that’s a good confluence of events. You mentioned the increasing interest among international institutional investors in Africa. Africa also has a large collection of local institutional investors. To what extent are they interested in private equity, or can they make allocations to private capital asset classes?

Alam: OK. So that one, I have to say, I was in a country in Africa last week. And just last minute, we set up some appointments with some pension funds, and the level of interest is extraordinary and also the level of sophistication. So the two groups I met with had already looked at private equity, were mapping it, set up internal processes as how to create a knowledgeable investment committee, how to go through all the relevant private equity funds and what their goals were. And they look like they’re ready to go within the next few months.

 

So at the African Private Equity Association, along with the Commonwealth Business Council, have been training pension fund trustees and other sorts of African investors for the last several years. And you go several years doing these things in training, and all a sudden, you see here are these people who went to a session two years ago, went to a session a year ago, went to something a month ago, and they’re ready to go. So it’s really growing.

And the other trend in this area is there are African countries, several of them now, that are changing the regulation so that various sorts of entities can now invest in private equity. So the combination of the two means that I do think there’s going to be significant capital coming out of Africa for private equity.

Snow: I’d like to ask you about your role as Chairman of the Board of the African Private Equity and Venture Capital Association, AVCA. What are your top priorities in order to help AVCA develop as an association?

Alam: The single, topmost priority for AVCA is to be an inclusive organization of every sort of constituents in the African private equity and venture capital area. So what do I mean by that? When it comes to GPs, we do want to be inclusive of all types of GPs. Africa doesn’t have one type of private equity or venture capital.

There are funds that do $10,000 investments, and there are funds that do $100 million investments. There are funds that are single country. There are funds that are pan-African. There are funds that do earlier stage. And there are funds, like we do, who only do cash flow positive and income-producing expansion capital. So to be inclusive of that, but also to be inclusive of the LPs.

So LPs are starting to look at Africa, or they’re already in Africa. But as an industry, we really have to do more industry-type research to help LPs as they go through their processes to decide, what does private equity look like in Africa versus maybe India or China? What are the benchmarks? Who do I go with? So more data needs producing.

And so to be inclusive to include that sort of data for LPs, as well as there are many other parts of the chain in private equity. There is the portfolio company, the CEOs, and the companies who receive the money. To get the message out about private equity, how to work with private equity, and just how it can help an entrepreneur and what might be some of the risks of private equity.

Snow: You mentioned inclusiveness.

Alam: Right.

Snow: How small can a group firm be and be a member of AVCA?

Alam: It can be a single person. So there’s no limit as to who can join AVCA. And actually, AVCA’s membership fees go on a sliding scale to try to be inclusive, and so everybody should be able to afford to join AVCA.

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