Technology as an essential ingredient in investment management success is no longer in question. Running on a differentiating investment strategy and some Excel spreadsheets simply isn’t viable. Fast-paced global markets, asset diversification and complexity, data volumes, investor servicing demands and intense competition mean advanced system capabilities are a must-have.
Analysis & Strategy
All around the world, Covid-19 has had a tremendous effect on education, closing schools for millions of students. In Africa, in particular, the school closures caused by the pandemic have exacerbated previously existing inequalities, and the children already most at risk of being excluded from a quality education have been the worst affected.
The first half of 2020 has been a roller coaster of emotions for the continent. There has been a drop in funding of $115.5m (24%) in H1 2020 that raised $370.5m across 149 rounds compared to $486m across 193 deals of H1 2019. On a positive note, February recorded the highest number in deal count (34 deals) that valued $124.7m for the period, which is 226.4% more than $38.2m raised across 22 deals in February 2019. The effects of the Covid-19 pandemic which has caused a drop is funding for startups on the continent as fundraising plans continue to be re-evaluated and business models tested. Most investors are cautious and continue to fund existing portfolio companies and or sectors that are seeing upside from Covid-19 effects. Funding to women led or women co-founded startups remains low at 13% of all funding raised. From the stage of funding rounds, Africa remains broadly a nascent to evolving startup ecosystem.
As the UK’s departure from the EU draws nearer, its government is increasingly seeking closer trading relationships with the countries of Africa. In its sights are Nigeria, South Africa and Kenya—the three largest sub-Saharan economies—and already, British Prime Minister Boris Johnson and Kenyan President Uhuru Kenyatta have agreed to begin negotiations on a post-Brexit trade agreement.
In the context of the social and economic realities that we are all witnessing as a result of the Covid-19 pandemic, it is our belief that technology led cloud-based businesses, solving real world problems with the ability to scale and adapt quickly, are best placed to weather this storm, and to even thrive therefrom.
Healthcare Technology (HealthTech) was already a sector of increasing interest among Venture Capital investors in Africa, but, as a result of COVID-19 more alternative assets professionals are looking for investment opportunities.
In a world in which the government and central bank have several means available to stimulate the economy, infrastructure spend is a powerful anti-recessionary fiscal policy tool.
When investors start out, most say to themselves “I have a long-term plan”. But just as often, our thinking about what is long term changes as soon as we experience the first market dip. Faced with volatility and uncertainty, our first impulse is to flee to safety.
The scale of the impact of Covid-19 on the global private equity market is uncertain. December 2019 ended a very strong decade for private equity encapsulated as a period of remarkable growth with overwhelming fundraising figures and outperformance of public markets. There was a bright path ahead - yes, private equity had seen its spike in growth, but now was a time for real consolidation, a time to focus on operating models, ESG and diversity, growth of the secondaries market to bring liquidity into private equity and increase capital flow to new jurisdictions. – all in all, an exciting decade ahead of sustained and sophisticated growth.
There is no doubt that global capital flows will be impacted by COVID-19. Emerging markets in particular are facing a severe slowdown in economic activity from lockdown implementation measures, as well as navigating to avoid a potential health crisis resulting from the outbreak of coronavirus.
In our March market commentary, we argued that the sharp intra-month rise in market yields had gone too far. Although the investment theme deteriorated in a significant way, it appeared that the market, at that point, had discounted a lot of the negative news flow. This view turned out to be correct, not just for April, but also for the month of May. During May, the majority of the RSA Government nominal fixed-rate and inflation-linked bonds ended the month at lower yields. In the nominal bond market, and in contrast to April when short-dated bond yields declined sharply and led to bullish yield curve steepening, the decline in yields was more evenly spread across the curve during May. In fact, yields at the short end of the yield curve pulled back from their intra-month low levels in response to a smaller than expected repo rate reduction of 50 basis points (bps) by the South African Reserve Bank (SARB). More specifically, nominal fixed rate bonds in the 7 to 12-year maturity band of the All Bond Index (ALBI) rendered a total return of 13.04%. This was well above the total ALBI return of 9.56% and a long way away from cash and inflation-linked bonds.
AGF asks leading experts about the role of the private equity and venture capital industry in helping businesses weather the COVID-19 crisis
Since the outbreak of Covid-19 asset classes have tumbled globally. Modern portfolio theory always dictates that a well-diversified portfolio should have a mix of asset classes that diversify the risk / return profile over time. However, in periods of market shocks and fast-moving markets on the downside we see much more auto correlation between asset classes. That is, they all behave similarly in varying degrees which, in the short-term, confounds the diversification principle.
The local and global economic outlook is bleak, yet the same may not be true for markets. Investment firm RisCura recently hosted a webinar with leading investment specialists in order to get their views on Covid-19 and its impact on markets, the economy and society.