According to data from the African Private Equity and Venture Capital Association concerning returns to Limited Partners (LPs) over a 10 year horizon, small-to-mid cap private equity funds (i.e. those with fund sizes below US$150mn) have delivered returns that are 3 times higher than the Africa PE and VC benchmark average (for the period ending 30th June, 2017).
As a key equity investor and one of Africa’s largest Fund of Funds, the African Development Bank has an important advocacy and demonstration effect responsibility for African institutional investors, especially new investors such as pension funds and Sovereign Wealth funds which can be further incentivized to invest in Africa with specific equity instruments adapted to their risk-return profile.
In light of the industry trends discussed above, and given the need to scale up investment to enhance the African Private Equity industry, the Bank has diversified its portfolio both sectorally and geographically with an increased focus to Low Income Countries (LICs). With a total active portfolio of US$1.398bn and 66 investments, the Bank covers at least one of the High5s resulting in relatively good coverage of this five priorities which represent the most important challenges facing Africa: Industrialize Africa (29%), Feed Africa (19%), Improve quality of life for the people of Africa (11%), Light up and power Africa (8%), and the remaining for Integrate Africa. In the quest to achieving its objectives of the African Private Equity industry, the Bank aims to nurture the sectors and industries especially in geographic locations, which are underrepresented in the Bank’s portfolio (Central Africa and Transition States) with stronger risk management and ADOA tracking of its investments.
For future equity investment, the Bank is called to do more thematic funds as dictated by its high five targets and in some cases to focus on specific countries (LICs and Fragile States). The Bank will continue to explore the creation of new pools of capital that can take higher risk for higher and targeted development outcomes (ex. impact financing), alongside other investors.« Back to Afri-Spective: An Inside Look at Private Equity in Africa