Will Jimerson, co-founder of private equity and advisory firm, Musa Capital, believes that, while Africa is indeed the next investment frontier – and that, driven by declining profits in other markets, investors will come regardless of perceived high risk – a different model is needed to get the super returns that should be possible.
Jimerson’s views are supported by participants in the 2013 SuperReturn Africa conference, at which Jimerson shared a platform with representatives of globally influential firms such as Fund of Funds Fairview Capital, ECP, a billion dollar Africa-focused fund manager, Dutch-based entrepreneurial development bank, FMO, and Siguler Guff & Company, a multi strategy private equity investment firm with over $9 billion in assets. Founder George Siguler founded the first private equity firm in Russia.
In a conference panel discussion about the ‘state of the union’ of private equity on the African Continent, it became clear that, as Jimerson puts it, “in terms of the way investors get their return, private equity as currently defined in Western market terms doesn’t work pound for pound, eye for eye, in Africa.”
He points out that the traditional investment model of taking a large or listed company, leveraging it up with debt, putting in new management, growing the bottom line, and then listing it again or selling it isn’t sustainable in Africa because there aren’t enough companies of sufficient size or markets big enough to support such deals. “But, while the markets are not big, they are intricate. So, you need local knowledge and local people. And you need to be hands on. Managing from New York or London is difficult at best. And you need to think in terms of the entire value chain.”
According to Prequin, a consulting firm that reports on private equity issues globally, 106 fund managers are looking to raise $24 billion for Africa but have succeeded in raising only 10% of that. Jimerson says that the challenges in converting Africa’s GDP growth, positive McKinsey studies, and good news generally about Africa into commitment from investors have much to do with lack of education about the Continent. “Investors are looking for case studies rather than theories. They want to talk to people like us, who’ve been successfully starting and managing funds in Africa for 18 years and can, therefore, prove that super returns are more than possible. “
Musa Capital started out investing in one element of a given value chain, such as low cost housing, and discovering that accelerating growth in the given portfolio company was best achieved by getting involved both up and down stream of the building process. Musa therefore invested in companies able to provide home loans at grass roots level and in property management companies that could provide rental accommodation with a view to ownership of the low cost housing being built.
Jimerson says that successful private equity in Africa is about connecting the dots.