In 2016, African Infrastructure Investment Managers (AIIM) sold investments in three privately-concessioned toll roads in Southern Africa to a consortium of largely existing investors including Public Investment Corporation, Liberty Group, Old Mutual and Africa Finance Corporation. The sale, which was structured via the South Africa Infrastructure Fund (SAIF), represents the largest private equity realization for toll road infrastructure in Africa to date.
Analysis & Strategy
It has now been two and a half years since the US Dollar began its +25% appreciation and the underperformance of African equity markets feels as if it has no end. Experienced Africa hands say the past period has been one of the toughest (and probably the most disheartening) to their knowledge. Given the record number of fund closures and dismal equity returns since mid-2014 (down 45%), investors are wondering whether Africa really is “reeling” rather than “rising”.
Southern African Private Equity and Venture Capital Association (SAVCA)/ Webber Wentzel PE data for the first three quarters of 2016 shows 140 deals reported across the Sub-Saharan Africa (SSA) region. A third of these were in South Africa, but Nigeria, Kenya and Namibia also featured prominently. Statistics show a significant year-on-year increase in deal flow.
Listed equity markets in Africa (excluding South Africa) present an opportune environment to add investment-alpha (fund returns exceeding the benchmark’s returns). Public disclosures are minimal compared with developed markets, and the research burden of on-site due-diligence is high. These factors lead to relatively inefficient markets, which can be exploited by a skillful manager willing to invest the time and resources required to uncover mispricing opportunities.
The 2008 global financial crisis occurred largely due to an increased level of counterparty credit risk and the inability of counterparties to stand good against their obligations. Approaching a decade on, financial market players should be fully aware of the regulatory ramp-ups and reforms being implemented to negate against anything similar happening in future.
Indexation is growing at a rapid pace globally and it is thought that most developed market investors are selecting index tracker funds as their default investment options these days. With data moving more freely and frequently in the world, the range of rules-based and transparent indices being developed have increase rapidly, focusing not only on market cap indices, but also ESG, smart beta and multi factor and multi asset solutions.
As human beings, we are continually evolving and modifying the societal norms that we live under. What would have been considered normal in the last century or even a decade ago can be quite different today. How business is done, from how companies are run to how investors invest in them and engage with them is also evolving and driven by the changes we see in societal norms. We could consider it a maturing of our society. Where we live also has a bearing on that, which is probably why when investing I have always considered some sort of responsible investing, even if the what it is called and how its defined has evolved with time.
The King (IV) Report on Corporate Governance for SA, 2016 (King IV) refers to certain “paradigm shifts in the corporate world”, including a shift from short-term capital markets to long-term, sustainable capital markets. The report also notes that the King Committee was requested by many entities outside the private sector to draft the King IV Report in such a way as to make it more easily applicable to all organisations: public and private, large and small, for- profit and not-for-profit. As a result, in order to make it easier for all organisations to use the King IV Report as a guide for good governance, King IV introduces “sector supplements” for the first time. Part 6.4 of the report is entitled “Supplement For Retirement Funds”, and it is applicable to all retirement funds, including pension funds, provident funds, preservation funds and retirement annuity funds, so that for the first time retirement fund governance is directly addressed by the King Committee.
Debt capital markets across Africa’s sub-regions have remained robust despite the macroeconomic and political challenges presented, “indicating their growing maturity and depth - along with their ability to develop solutions in the face of volatility and change,” says Zoya Sisulu, Head, Debt Capital Markets South Africa, at Standard Bank.
The inaugural AGF Africa Service Providers Awards 2016 were held on October 27 at the gracious Rotunda in Camps Bay, Cape Town. Built in 1904, the iconic Rotunda ties The Bay Hotel to its Victorian roots. Once, the site of early-20th century high society gatherings, the historic venue accommodated Africa Global Funds’ guests for a Gala dinner and Awards ceremony.
Today the role of the custodian in Africa has evolved. This is especially evident in the way custodians are focusing on meeting both business and client needs to initiate and enable development of the continent’s capital markets.
Langelihle Mnyandu, Associate, (left) and Francisco Khoza, Partner and head of Banking & Finance, Bowmans, analyze the impact of the Solvency Assessment and Management (SAM) framework on private investment funds
As global economic changes give rise to new investment risks and opportunities, having the flexibility to allocate assets into new markets may be a more effective way to capture opportunities. The underlying structural weakness of the US and developed economies will result in an increasingly dominant role for emerging economies with strong financial balance sheets.
Fund managers face numerous challenges in today’s increasingly complex investing and operating environment. Operational issues, specifically when properly understood and managed, help efficiency. As managers consider the stakes for sustained growth, outsourced shadow-accounting as an extension of in-house operations provides access to an array of capabilities that are increasingly seen as critical to mid-sized and large hedge fund operations.