Wednesday, May 7, 2014

Imposing a Model?

AfrAsia Bank is pleased to post the following from Gary Sharp, Head of Private Equity and London Representative Office at AfrAsia Bank Limited.

‘We now have a robust governance model, evolved from our experiences in other emerging markets, that I’m totally confident will protect and enhance our investments in African PE funds’ – so (mildly paraphrased) speaks a US institutional investor contemplating his first commitments to the region. Well, OK, let’s wait and see how that goes for you, we might respond.

But can we afford it? The time, to wait, I mean. As Carlyle closes its first Africa fund, the Helios and Actis big deal machinery grinds on, Abraaj remakes Aureos in its own image and ECP darts in and out of the headlines, what does this all mean for the rest of the SSA private equity industry? And is ‘polarisation’ going to be the key word for conference speakers when they come to prepare their 2014-16 powerpoint reviews?

Today we can feel the first rumblings of tectonic shift as SSA starts to appear on the asset allocation tables of Western institutional investors. Big Money. Carrying with it Big Rules; the inviolable governance and reporting requirements that only a few GP’s (roughly speaking, those named above) can be expected to meet.

And if all this implies a sort of ‘top down’ context for the evolution of African PE, perhaps that is no bad thing. After all, although the US and European markets evolved from small to big, there is plenty of evidence, from a number of indigenous African GP’s whose success with small, localised funds 1 and 2 disastrously failed to carry over to larger, broader based successor funds, to suggest that this won’t work here.

Perhaps, though, what we need is a new model, something built upwards not from GPs’ ambitions but from the intrinsic nature of expanding African companies’ capital requirements. We all hear grumbles of disillusionment from many institutional investors with the fixed term, blind pooled fund model that has defined the global PE industry for so long. Well, leaving aside the largest international deals, they don’t suit many investees either.

In this occasional series we’ll be looking at other ways in which PE might evolve to meet the needs of investors and investees; please do comment and contribute as we do.

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