Private equity a favoured investment route to African growth

Great investment opportunities in Africa are more likely to be found in the less common private equity asset class.

That’s the view of Pieter de Wet, head of research at Novare Equity Partners: “Contrary to the opinion that investment opportunities line the roads in Africa, it can be difficult to get adequate exposure for investors to the real growth potential.”

He says the struggle to find sufficient listed vehicles to invest in is made more competitive by South African institutional investors looking to utilise the 5% allocation to Africa permitted by regulation.

De Wet says the private equity asset class offers a range of investment opportunities that are designed to capture growth in different underlying economic sectors. Private equity funds generally invest in equity securities and the debt of operating companies that are not listed on a publicly traded stock exchange.

Novare Equity Partners is a private equity fund manager focused on retail and commercial property development in sub-Saharan Africa. Its investors are mostly institutional, particularly pension funds that prefer to adopt the longer term investment horizons required with the private equity asset class.

De Wet says Novare’s real estate developments are intended to capitalise on growing demand from middle income consumers who have improving spending power but who are under-serviced.

“The rise in urbanisation means that African cities are growing at tremendous rates. However, we are also dealing with a continent with extremely bad infrastructure. While we tend to look at cities more than countries, our first fund was fully allocated to Nigeria. We also see a lot of potential in Mozambique.”

Novare equity Partners launched its first fund, the $81 million Novare Africa Property Fund I, in July 2010. The fund’s first investment was in the successful Novare Apo mall (previously Grand Towers Abuja Mall) in Nigeria, which opened in June 2012 with Shoprite as the anchor tenant – alongside prominent brands like KFC, Mr Price, MTN, LG, Adidas and Samsung.

The Novare Africa Property Fund II had its first close at end June 2014 and has since attracted additional commitments to reach the desired target of $400 million by the end of this year.

Both of Novare’s property funds adopt a high-return target with internal rates of return in excess of 25%. Domiciled in Mauritius, they are listed on the Mauritian Stock Exchange.

De Wet said investors should be cautious about the funds they invest in as not all managers are suitably equipped and experienced to deal with Africa’s difficult operating environment.