AVCA's 2021 Industry Survey reveals LPs’ and GPs’ long-term commitment to Africa

15 Apr 2021

15 April 2021, London: Today, the African Private Equity and Venture Capital Association (AVCA) announces its sophomore Industry Survey release. The definitive review examines a broad cross-section of global and African Limited Partners' (LPs) and General Partners' (GPs) perspectives and attitudes to investing in African private equity (PE) across various categories, sectors, geographies, investment stages, challenges, and returns.

The majority of LPs surveyed (86%) plan to raise or maintain their allocation to African PE over the next three years, with impact and the investment mandates viewed by most LPs as the primary factors driving their investment approach. In terms of the African PE industry's attractiveness following COVID-19, 65% of LPs believe African PE's attractiveness remains unchanged following the global pandemic. The survey also finds that 68% of LPs view Africa as a more attractive market for PE investment compared to other emerging and frontier markets over the next ten years. Similarly, 67% view African PE as more attractive or as equally attractive as PE investment in developed markets over a five-year horizon and this figure rises to 74% over a ten-year horizon.

In terms of geographies, 71% of LPs jointly selected West Africa and North Africa as attractive regions for PE investment over the next three years, whereas 77% of GPs cited East Africa as an attractive region for the same period. The second-largest share of LPs view Egypt as an attractive country for PE investment in Africa over the next three years.  Notably, Kenya and Nigeria are viewed by the largest proportions of LPs and GPs as attractive countries for PE investment during the same period. This marks a consistent year-on-year trend, as the highest percentages of LPs and GPs in last year’s survey had also selected Kenya and Nigeria as attractive countries for PE investment.

According to the study, Healthcare & Life Sciences, Financial Services and Technology were identified by LPs as the most attractive sectors to invest in over the next three years, while GPs see Healthcare & Life Sciences, Technology and Agribusiness as the most favourable sectors throughout the same period.

The majority of LPs (53%) would consider investing in a first-time fund manager, and 59% have done so over the past five years.

Regarding potential obstacles to LP and GP investment in Africa, LPs consider a perceived weak exit climate and unpredictable exit windows as barriers to LP investment in African PE. Nevertheless, 81% of LPs that shared this concern are planning to increase or maintain their allocation to PE in Africa in the next three years. Furthermore, limited exit opportunities, the fundraising environment, and the global macro-economic downturn are viewed by LPs as considerable challenges facing GPs in Africa over the next three years.

According to the survey, the majority of LPs (58%) believe that local capital flows will catalyse the PE industry in Africa, while 58% of GPs say that international capital flows will be the catalyst. Separately, a significant share of LPs (84%) view growth capital as a strategy of interest when investing in African PE over the next three years.

On the topic of returns, most LPs (69%) expect African PE returns to exceed 2.0x over the next ten years. A significant share of LPs (82% and 91%) believe that African PE returns will be similar to or outperform other emerging and frontier markets over the next five and ten years, respectively. Meanwhile, compared to developed markets, 55% of LPs think African PE returns will be similar to or outperform their developed market counterparts within the next five years, and this figure climbs to 74% when extended to a ten-year horizon. Finally, two thirds (67%) of LPs that expect returns of 2.0x or higher in the next five years also expect PE in Africa to be more attractive than PE in developed markets within the same time frame.

The Industry Survey also comprises key insights on perspectives towards the impact of COVID-19 on PE portfolios, COVID-induced responses, opportunities and challenges in Africa's PE industry and attitudes on Environmental, Social and Governance (ESG) criteria, co-investments, exit routes, the macroeconomic environment, and more.

Abi Mustapha-Maduakor, Chief Executive Officer, AVCA, commented, "The comprehensive survey and data gather nuanced insights from a broad base of LPs and GPs with diverse strategies united by our common interest - Africa. Opportunities and emerging trends across the region continue to crystallise and unfold; the industry survey findings show that investors remain confident in Africa as a long-term investment strategy. As a champion and effective change agent for the industry, AVCA looks forward to sharing ongoing research, insights and working more closely with the region to accelerate even more private capital to Africa's promising markets."

The 2021 African Private Equity Industry Survey is sponsored by FSD Africa Investments.

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