Inexperience tops LP concerns over Africa

Political risk, a challenging exit environment and a lack of established GPs are investors’ biggest worries when backing Africa-focused funds. 

At a time of increasing investor appetite for Africa-focused funds, GPs will have to first ease their concerns about the continent’s exit environment and limited number of experienced advisors, according to an LP survey from the African Private Equity and Venture Capital Association (AVCA).

The relative youth of Africa-focused fund managers was named by 25 percent of investors as their biggest barrier to investment on the continent. Roughly the same percentage cited a weak exit environment as their biggest worry. Taken together, political and regulatory risk accounted for one out of every three investors’ top concern. 

To assuage this worry, the AVCA recently published a series of country-specific guides that provide legal and regulatory advice for fund managers. Already the group has written guides on Ghana, Nigeria, Zimbabwe, Mauritius, Morocco, Tunisia and South Africa. New country guides covering Kenya and Tanzania were unveiled this week in Lagos.

The research found that 85 percent of global LPs expect to increase their exposure to African private equity over the next two years. Three quarters of LP respondents said they would consider a first time fund if backed by the right managers.

Around half of LPs surveyed also said they place a greater importance on corporate governance issues in Africa as compared with other emerging markets.

“The governance aspect focuses on initiatives such as compliance factors, bringing in independent non-executive directors, and putting in place solid financial reporting and protocols, among other processes,” AVCA said in its report.