Agf digital magazine october 2015

AFRICAO C T O B E R 2 0 15 / V O L . 1 / I S S U E 9

www.africaglobalfunds.com | T africaglobfunds

ctis, an emerging markets investor, focuses on investments

in Africa, Asia and Latin America. The firm has a strong track

record of backing high-quality businesses in Africa with over

$3bn invested in 23 countries across the continent to date.

MARKET:MAURITIUS

evelopments in South Africa, such as changes to Regulation

28 of the South African Pension Fund Act and the launch of

the Code for Responsible Investing in South Africa (CRISA)

a few years ago, have put a growing emphasis on ESG (Environmental,

Social and Governance) factors.

ith unprecedented potential of growth, a ris-

ing middle-class and rapid urbanisation, to-

day Africa offers to the global investor com-

munity unmatched investment opportunities in various

sectors; this is where Mauritius comes into the picture.

GLOBAL FUNDS

Read on pp. 14-15

Read on pp. 12-13 Read on p. 16-17

Q&A:ACTISAGF’s Managing Editor Anna Lyudvig speaks with David Cooke, Director at Actis, about the firm’s investment strat-egy in Africa, opportunities and challenges

ANALYSIS:ESG: HEDGE FUNDS South Africa formally encourages investors to integrate ESG issues into their investment decisions. Have SA hedge funds been taking this seriously?

The country is rising to become the natural gateway for investing in Africa, says Shaffick Hamuth

A

D W

https://www.africaglobalfunds.com/?utm_source=pdf&utm_medium=em&utm_campaign=October2015

https://twitter.com/africaglobfunds

www.africaglobalfunds.com

The AGF magazine is praised for "finding the news behind the news." Extensive participation from the industry allows us to ensure that we are always addressing the issues that really matter.

News Traditional and alternative asset classes, fund-raising and fund launches, industry news and investors allocations, as well as people moves (pages 4-11).

AnalysisMarket insights, executive interviews, round-table discussions and in-depth research.

Opinion & CommentaryIndustry experts express their take on the markets and events happening in Africa.

DataOur database of private equity funds perfor-mance, public funds performance, economic statistics, and market performance (S&P exclusive data).

Magazine outline:

At your fingertips:


OCTOBER 2015

www.africaglobalfunds.com | 3

EDITORIAL

Dear Reader,

In this month’s issue of Africa Global Funds we continue to look at ESG (environmental, social and governance) principals. South Africa formally en-courages investors to integrate into their investment decisions sustainability issues. We explore whether South African hedge funds have been taking ESG issues seriously and learn about the benefits of sus-tainable investing.

Meanwhile, South Africa has a deep pipeline of available infrastructure assets, say Mark van Wyk and Kasief Isaacs of Mergence Investment Managers, adding that there is a case to be made for infrastructure investing right now.

In addition, Mike Brown, Managing Director of etfSA.co.za, analyses the passive investment landscape in South Africa, saying that there has been some meas-urable swing to passive investment products in recent years.

As the African continent continues to attract global interest, Mauritius is rising to become the natural gateway for investing in Africa. In this month’s market feature, Shaffick Hamuth, Economist and former Senior Investment Advisor of the Board of Investment, Mauritius, outlines opportunities for private equity as well as for capital markets investors.

Finally, this month we speak with two private equity firms – a pan-emerging markets private equity investor Actis and long-term responsible investor Amethis Finance. We find out why Amethis stands out from the African private equity crowd and learn about Actis’s experience of investing in Africa.

Best regards,

Anna LyudvigManaging Editor

AFRICAGLOBAL FUNDS

Web:www.africaglobalfunds.com Twitter: AfricaGlobFundsLinkedIn: Africa Global Funds

Editorial:

Anna Lyudvig+1 (718) 787 [email protected]

Commercial:

Roman Onosovski+1 (561) 866 [email protected]

Support/Technical:

[email protected]

Contributors:

Mike BrownShaffick HamuthKasief IsaacsMark van WykThomas Venon

Published byAfrica Global Funds LLC© 2015 All Rights Reserved

No parts of this publicataion may be reproduced withoutwritten permission



https://twitter.com/africaglobfunds

https://www.linkedin.com/groups/Africa-Global-Funds-8205232

mailto:[email protected]



OCTOBER 2015

4 | www.africaglobalfunds.com

NEWS

GROFIN LAUNCHES SGB FUND FOR AFRICAroFin, an SME development financier, has launched the GroFin Small and Growing Businesses (SGB) Fund that aims to catalyze sustainable job creation through

supporting small and growing businesses in Africa.Guido Boysen, CIO at GroFin, said: “In most African countries the

small and growing businesses (SGB) sector is a major contributor to inclusive economic growth and job creation. However, entre-preneurs in Africa are grossly under-served, with 50-90% of SGBs failing within the first five years.” “As a result, many African countries are missing out on a major engine for sustainable job creation that can help tackle poverty and improve livelihoods. Start-ups and small businesses often struggle to access the capital they need to expand. Their limited track record, fluctuating cash flows, low levels of collateral and capacity limitations makes it difficult to meet the lending criteria of most banks,” he told Africa Global Funds.

“The GroFin SGB Fund seeks to address these market barriers by providing African entrepreneurs with an integrated solution of patient growth finance, tailored business support, and access to markets,” he added.

The Fund was created by GroFin in partnership with Shell Foundation, the German development bank KfW, the Norwegian Investment Fund for Developing Countries, Norfund, and the Dutch government through the Dutch Good Growth Fund (DGGF).

The Fund, which has initial commitments of $100m, will target SGBs in Ghana, Nigeria, Uganda, Zambia, Kenya, South Africa, Rwanda, Tanzania, and Egypt.

Over the next two years, with grant funding from the German gov-ernment through KfW, GroFin plans to expand the Fund’s support to SGBs to three more African countries.

“A number of countries are currently under review, and subject to proper due diligence. No decisions have been made yet,” said Boysen.

The Fund is expected to grow to $150m in two years, making it one of the largest funds specifically targeting small and growing

businesses.“The Fund’s tiered capital structure

enables a range of social and commercial investors to join the Fund post its launch,” he said.

The Fund focuses on SGBs that are grossly under-served by other funds or financiers.

“Based on the viability of an entrepre-neur’s business and growth plans, and not the availability of collateral, entrepreneurs will be able to access loans ranging from $100k to $1.5m for a period between two and six years,” added Boysen.

The aim is to make 80 – 100 investments per year at an average deal size of $350k.

The GroFin SGB Fund’s key focus is investing in high-impact sec-tors such as healthcare, education, agro-processing and energy in addition to other sectors that support inclusive growth.

The Fund is a high-impact African investment opportunity that creates both positive impact and a financial return from an un-der-served SME market segment.

Over 10 years the growing SGB portfolio will sustain 47,000 em-ployees as part of its impact.

Boysen said that the Fund has Business Support Facilities where business owners can obtain advice from GroFin’s local and inter-national SGB experts.

“Through pre-investment business support, GroFin’s team of locally-based investment managers will help entrepreneurs develop viable business plans, identify and mitigate potential risk and execute effective growth strategies. For those who qualify for investment, the business support services continue for the entire duration of the investment,” he said.

Established in South Africa in 2004, GroFin has grown from the RAPS group of companies that have invested in small and growing businesses since 1999.

G

INVESTORS

MERIDIAM INFRASTRUC-TURE AFRICA FUND GETS €30M FROM EIB

The European Investment Bank (EIB), Eu-rope’s long-term financing institution, has announced a €30m ($33.51m) investment in the Meridiam Infrastructure Africa Fund, a pan-African fund targeting essential infra-structure projects.

Pim van Ballekom, European Investment Bank Vice Presiden, said: “Investment across Africa to improve energy, education, water and transport infrastructure is es-

sential for economic activity and improving lives.”

“The Meridiam Infrastructure Africa Fund will help projects being implemented for the first time by sharing experience from similar schemes elsewhere, both in Africa and Europe. The European Investment Bank is committed to supporting infrastructure investment that unlocks business oppor-tunities, reduces costs and contributes to achieving the Millennium Development Goals and this new initiative firmly supports these goals,” he said.

The fund, which is managed by Meridiam, a global investor and asset manager special-izing in public and community infrastruc-

ture, is expected to make 8-10 investments, predominantly in greenfield projects, but may also invest in selected secondary pro-jects at the operational stage.

The fund will finance infrastructure pro-jects in the sectors of energy and power, transportation, environmental infrastruc-ture, social infrastructure and telecommuni-cations infrastructure in African countries.

The fund will generally seek to acquire significant minority or majority stakes of the junior/equity capital in each project with strong corporate governance rights to be able to monitor and manage project risks.

The Meridiam Infrastructure Africa Fund is currently finalizing investment in three pro-

Guido BoysenCIO, GroFin


OCTOBER 2015


NEWS

Deloitte has acquired Frontier Advisory, as the company seeks to expand its opera-tions in the African continent and in other emerging markets.

Lwazi Bam, Deloitte Africa CEO, said: "With the acquisition of Frontier Advisory, we are

ASSET SERVICINGDELOITTE ACQUIRES FRONTIER ADVISORY

availability of its service to customers at all times in this rapidly evolving market,” he said.

Chims Africa is the largest agent operator within the MTN mobile money network, the Ugandan market leader in Mobile Money, with a strong position in rural areas with over 130 outlets across the country.

Norman Batuma, Chims CEO, said that the company had recorded rapid growth since inception and was now looking to expand its financial services business by increasing its national foot print and introducing new services.

Chims currently has over 190 Employees. Through its services and outlets, Chims

has indirectly created job opportunities for many more and plans are underway for further rural expansion.

Chims continues to grow its customer base daily and currently stands at over 7 million users.

Ascent’s direct investment in expansion of agent network, will directly strengthen the customer reach in rural areas.

“We continue to explore avenues through which we can add more value to our cus-tomers. We target increasing our Mobile Money Branches by 700 outlets and at the same time be the leading provider of Mobile Money and related financial services to deepen financial inclusion in Uganda,” Batuma added.

This is the second investment by ARVF this year.

In February 2015, the Fund invested $2.5m into Medpharm Holdings Africa, a medical diagnostic laboratory with operations in Ethiopia and expansion ambitions in the greater East Africa region.

ARVF targets scalable fast growing enter-prises in Kenya, Uganda and Ethiopia.

The fund invests between $2m and $10m per investee company.

even better equipped to advise inbound investors and intra-Africa investors."

Frontier Advisory is a research, strategy and advisory firm that assists clients to improve their competitiveness in frontier and emerging markets.

Following the acquisition, the company be-comes known as Frontier Advisory Deloitte.

Frontier Advisory's CEO Martyn Davies moves across together with 12 of his staff.

“I am delighted to join Deloitte and look forward to being a part of Deloitte’s growth in Africa and connecting our continent to the global economy. It is noteworthy that Deloitte has itself been operating in Africa for over 100 years and so I believe the team will be an extremely powerful voice and force in the frontier and emerging markets advisory space,” said Davies.

Bam welcomed Davies to the team and said this move would “further enhance our offering and ability to deliver innovative ideas and add meaningful insights to our client’s plans to grow in Africa."

"We want to ensure businesses can thrive in these frontier markets and believe the synergies between Deloitte and Frontier Advisory will further enhance our service offering. Our firm has realised impressive growth and we attribute this, in part, to our own expansion on the continent,” he said.

“Deloitte is invested in the future of the African continent and as such, we are par-ticularly excited about the prospects this partnership presents for making a mean-ingful impact on our client’s, governments and communities on our continent,” he added.

Frontier Advisory possesses extensive networks, market understanding and oper-ational experience in all emerging regions that have enabled it to strategically posi-tion clients businesses in these economies.

“As Frontier Advisory Deloitte we will be able to develop increasingly strategic and bespoke solutions for clients, with the abili-ty to harness Deloitte’s deep global network providing a new edge,” said Davies.

Kevin Black, Head of Deloitte’s Clients and Industries Team, said strategic po-sitioning focusing on the growing trend of intra-emerging market capital flows, training to leading corporates, multina-tionals and government organisations and events would be some of the main areas

Ascent Rift Valley Fund (ARVF), an SME focused private equity fund investor, has invested in Chims Africa, a mobile money operator in Uganda.

Richard Mugera, Ascent Capital Uganda Country Director, said that Uganda has over the last few years become one of the lead-ing nations in mobile money in the world.

“We are very pleased to team up with Chims to help cement the company's leading position in the Ugandan market. This investment will allow Chims to ensure

DEALS

ASCENT MAKES SECOND DEAL WITH INVESTMENT IN UGANDA’S CHIMS

jects, a solar photovoltaic project in Sene-gal, a university campus in Côte d’Ivoire and airports renovation in Madagascar.

Thierry Déau, Meridiam’s Founder and CEO, said this fund is an ideal opportunity to unleash much needed investment in African infrastructure.

“We believe we can contribute to support efforts across the continent to build capac-ity in infrastructure delivery to accompany and foster African growth. In this way we will collectively harness the enormous po-tential created by Africa's young population, burgeoning middle classes and increasingly urbanized population,” he said.

Founded in 2005, Meridiam is an inde-pendent investment firm specialized in the development, financing, and management of long-term public infrastructure projects.

With offices in Paris, New York, Toronto and Istanbul, Meridiam currently manages €3.2bn ($3.5bn) of assets.

Meridiam is one of the first investors and asset managers to receive ISO 9001 certification for its responsible investment process and is a founding member of the Long Term Infrastructure Investors Associa-tion.Group, said: “We are currently reviewing projects in Mauritius, Ghana, Mozambique, Nigeria, Rwanda and Zambia, all of which present tremendous opportunities for our investors and the local communities in which they are based. Our investment pipeline includes more than a dozen pro-jects and we expect to commit funds to at least two of these projects prior to the end of 2015.”


OCTOBER 2015


NEWS

Actis has exited its investment in a power generation platform Globeleq Africa to a

EXITS

ACTIS EXITS GLOBELEQ AFRICA TO CDC AND NORFUND

company owned by Norfund, the Norwegian investment fund for developing countries and CDC Group, the UK government’s devel-opment finance institution.

Norfund acquired a significant minority stake (30%) in Globeleq Africa for a final cash consideration of $227m.

CDC, which already held a majority indirect investment in Globeleq Africa via the Actis Infrastructure 2 fund, transferred its in-terest into the new company owned jointly with Norfund.

“CDC and Norfund have now completed the process to secure direct ownership and control of Globeleq, having obtained the necessary government and lender con-sents,” a spokesperson from CDC told Africa Global Funds.

“Under CDC and Norfund ownership, Glo-beleq aims to add at least 5,000 megawatts of generating capacity to the grid in Africa over the next 10 years, which will enable the creation of over 1.5 million new formal and informal jobs across Africa,” he added.

Globeleq Africa manages electricity-gen-erating assets across Cameroon, Tanzania, Cote d’Ivoire, Kenya and South Africa, span-ning gas, heavy fuel oil (HFO) wind and solar technologies.

During the past seven years, through Globeleq, Actis has invested over $350m in Globeleq Africa.

As a result, Globeleq Africa has more than doubled its installed capacity to 1,234MW and the business is now the leading power generation platform on the continent.

Key milestones during Actis’s invest-ment in Globeleq Africa have included the completion, on time and below budget, of the Azito power plant conversion in Cote d’Ivoire from open to combined cycle tech-nology.

The conversion increased the plant’s installed capacity by almost 50% (to 432MW) eliminating the need for additional gas, this has significantly contributed to the stability of Côte d’Ivoire’s power sector.

Globeleq Africa also successfully backed the construction of three renewable energy generation assets with a combined capacity of 238MW under the first round of the ambitious South African Renewable Energy Procurement Program.

The next growth milestone will be the expansion of the Kribi generation plant in

The fund, which is headquartered in Nai-robi, held its first close of $100m in March 2014 and since that time has been investing capital in grid-connected development stage renewable energy projects, including small hydro, wind, geothermal, solar and biomass projects.

Alastair Vere Nicoll, Berkeley Energy’s Partner and Co-Founder, said: “We are very pleased to have reached our target fund raising and look forward to continuing our work focusing on the technical delivery of our projects with our project partners from concept to generating reality."

The European Investment Bank (EIB) and the Global Energy Efficiency and Renewable Energy Fund (GEEREF), have contributed to the final close among other investors.

Pim van Ballekom, European Investment Bank Vice-President, said: “As one of the world’s largest investors in renewable energy, the European Investment Bank is committed to ensuring that new projects can be implemented around the world."

"This engagement is demonstrated through our support for the Global Energy Efficiency and Renewable Energy Fund, GEEREF. Our combined backing for the African Renewable Energy Fund will provide both financial support and share technical experience essential for smaller renewable schemes being implemented for the first time,” he said.

The final investor group also includes West African Development Bank (BOAD), ECOW-AS Bank for Investment and Development (EBID), the Netherland Development Finance Company (FMO), Calvert Investments, the UK’s Development Finance Institution CDC Group, the Belgian Investment Company for Developing Countries (BIO), OeEB - the Development Bank of Austria, Wallace Global Fund, Sonen Capital, Berkeley Ener-gy, African Biofuel and Renewable Energy Company (ABREC) and a number of other private investors.

The African Renewable Energy Fund (AREF), a dedicated renewable energy fund focused on sub-Saharan Africa, has successfully reached its final close at its hard cap, with $200m of committed capital to support small- to medium-scale projects.

The African Development Bank (AfDB) and its Sustainable Energy Fund for Africa (SEFA) are the fund’s lead sponsors, with equity in-vestment of $25m and $25.5m respectively, alongside $4.5m from the Global Environ-ment Facility (GEF).

SEFA has additionally committed a $10m Project Support Facility (PSF) to be deployed at an early stage to structure bankable deals.

The total AfDB-mobilized package of $65m has provided a solid foundation for attract-ing capital from commercial and institu-tional investors to the renewable energy segment in Africa.

Alex Rugamba, Director of AfDB’s Energy, Environment and Climate Change Depart-ment, said: “AfDB is pleased to see that AREF is now fully capitalised to deliver on its pan-African mandate. We are also equally excited that SEFA and Global Envi-ronment Facility participation have been catalytic in mobilizing significant amounts of commercial capital into AREF over a short time-frame; this is key for accelerating de-ployment of modern, clean and affordable energy in the continent.”

AREF is the first dedicated sub-Saharan African renewable energy fund and is man-aged by Berkeley Energy, a fund manager focused on developing and investing in renewable energy projects in emerging markets.

FUNDRAISINGBERKLEY HITS FINAL CLOSE FOR AFRICAN ENERGY FUND

that would be driven following the buy-out of Frontier.

“There is an extensive amount of global interest, particularly from more mature lower growth economies like the UK and continental Europe, not to mention the new world that is the BRICS around opportuni-ties in Africa and how we can partner with them on this journey,” said Black.


OCTOBER 2015


NEWS

The expulsion of Nigeria from JPMorgan’s Government Bond Index is an embarrass-ment to the economic reputation of the Nigerian Government, according to Ayo Sa-lami, CIO of Africa Liquid Strategies at Duet Asset Management.

JPMorgan Chase and Co has announced that the largest African economy will be removed from its Government Bond In-

MARKETS AND INDUSTRY NEWS

NIGERIA EXPELLED FROM JPMORGAN’S BOND INDEX

The Public Investment Corporation (PIC) and African Export-Import Bank with participa-tion from other investors, have provided $365m of debt and equity financing to Smile Telecoms Holdings (Smile), a pan-African telecommunications group.

The funding is comprised of $50m of equi-ty, raised from the PIC on behalf of Govern-ment Employees Pension Fund, and a $315m multi-tranche, multi-jurisdictional debt fa-cility led by African Export-Import Bank with participation from the Development Bank of Southern Africa, Diamond Bank, Ecobank Nigeria, the PIC, the Industrial Development Corporation of South Africa and Standard Chartered Bank.

Founded in 2007 and incorporated in Mauritius, Smile owns and operates mobile wireless 4G LTE broadband networks in the 800MHz band in Nigeria, Tanzania and Uganda.

Smile's shareholders now comprise Al Nahla Group, a Saudi Arabia-based com-pany, which is the majority shareholder; Renven Investment Holdings, a pan-Afri-can investment vehicle, in which Nigerian investors, including the Obijackson Group, are the majority; Verene, representing Smile senior management and social entrepre-neurs from South Africa; Telecom Invest-ments, a Saudi Arabian-based investment company; Capitalworks, an active alterna-tive management company, specializing in investment in the African mid-market; the PIC; and Smile employees.

The funding is one of the largest capital

INVESTORS

PIC, AFREXIMBANK AND OTHERS INVEST $365M IN TELECOM GROUP SMILE

raises ever for a telecommunications oper-ator in Africa and brings the total funding committed to Smile since its founding in 2007 to approximately $600m.

The new round of funding will be used to expand Smile's existing 4G LTE mobile broadband networks and services, such that by the end of 2015, Smile will offer clear voice services and have national coverage comparable to the largest 3G network in each of its current countries of operation.

Smile will also launch its broadband net-work in Democratic Republic of Congo early in 2016.

Under the terms, the funding will be used to accelerate national network roll-out, including equipment and services provided by Alcatel Lucent and Ericsson, a full MPLS (Multiprotocol Label Switching) network, a London Point of Presence and expanded international backhaul services, and to fund operational expenditure and working capital.

Smile's objective is to become the broad-band provider of choice for super-fast data and clear voice in each of its markets and to provide over 300 million potential custom-ers in its four countries of operation with a fast, reliable and high quality platform to accelerate development and wealth creation.

Irene Charnley, CEO of Smile, said: "Now that we are fully funded to deliver national coverage of unrivaled super-fast internet access and clear voice services, our priority is to ensure that our customers experience and benefit from the power of high speed mobile broadband compared to the nar-row-band services available to date, includ-ing how to effectively manage the superior experience in terms of data consumption."

Cameroon, currently in advanced develop-ment and expected to reach financial close later in the year.

Torbjorn Caesar, Actis Senior Partner, said: “We are proud of what we have achieved over the past decade in terms of creating a much needed energy infrastructure in Afri-ca. We are confident that CDC and Norfund, working as direct investors with Globeleq Africa’s management team, can successfully continue that work.”

Goldman Sachs acted as exclusive advisor to Actis.

dex-Emerging Markets (GBI-EM) by the end of October 2015, after restrictions on FX transactions prompted investor concerns over a liquidity shortage.

The country has a 1.5% weighting in the GBI-EM index, which is tracked by $183.8bn of funds globally, according to the bank.

JPMorgan, the largest financial services holding company in the US, added Nigeria to its index in 2012 and on January 16, 2015 placed the country on a negative index watch.

Salami said that index inclusion back in 2012 was generally viewed as confirmation of Nigeria’s emergence as an acceptable destination for international financial flows.

He added that the move was not unex-pected, however the timing is earlier than anticipated since the previous expectation would be completed around December.

“The immediate impact of Index exclusion on the domestic economy is likely to be minimal, since a lot of foreigners had al-ready exited the local fixed income market,” he said.

Estimates suggest that foreign holdings of Nigerian bills and bonds had declined from about $8bn to around $2bn.

“Given the selling pressure, domestic yields have been rising and currently 180-d yield stands at ca.15.5% (vs 13% in Jan 15). If the remaining $2bn were to be withdrawn, domestic banks and pension funds have the capacity to absorb the offer and net impact on yields should not be more than an addi-tional 0.5% to 1%,” Salami said.

“Given that this event was reasonably well flagged, those foreign investors still left in Nigeria are unlikely to have suddenly become more pessimistic about the outlook for the markets or the economy. Nigeria’s fundamental problems are well known –slowing growth, falling oil price, falling Government revenues, rising C/A deficit, pressure on the FX rate etc. Nothing has changed today, that most investors were not aware of yesterday,” he added.

In terms of policy, Salami expects continu-ation of CBN’s policy of administrative con-trols to limit demand for foreign exchange.

“Inexplicably the CBN has chosen to sac-rifice economic growth on the altar of cur-rency stability. The 2Q15 numbers showed a deceleration in real GDP growth to 2.35% from 6.54% a year ago,” he said.


OCTOBER 2015


NEWS

hile volume remains relatively low in Africa with almost

11% of the microfinance portfolio of all microfinance

investment vehicles (MIVs), investment in Africa has

grown by 211% over the past five years, according to the latest

survey by Symbiotics.

The 9th Annual Microfinance Investment Vehicles survey re-

vealed that Africa is the fastest growing continent followed by

Asia (+92% since 2010).

Africa has also recorded the fastest growth measured on an

annual basis (21%).

The Survey, which aims to provide comprehensive market trends

and peer group analysis on microfinance off-shore investments,

is based on December 2014 financial and social performance

indicators reported by a large number of MIVs.

Symbiotics has identified 110 MIVs in the world, with 84 of them

being included in the latest survey, representing 96% of the total

market share, which is estimated at $10.4bn AUM.

Marina Parashkevova Holmegaard, Market Research Analyst at

Symbiotics, said that there are seven regional MIVs that are fo-

cused exclusively on Africa, and many other global focused funds

that have Africa allocations.

In 2014 there were two new funds launched, both with a specific

country focus – one on Rwanda and another one on the Demo-

cratic Republic Congo: the Microfinance Challenge Fund Rwanda,

managed by the Frankfurt School of Finance & Management,

and the FPM SA (Fonds pour l’inclusion financière en République

Démocratique Congo), managed by Incofin.

Holmegaard said that the majority of the regional funds invest

in debt instruments and there are also a number of hybrid and

equity funds.

Vincent Lehner, Head of Financial Institutions at Symbiotics,

added that there are also many MIVs that are trying to diversify

their strategies by turning to Africa because of its potential and

due to the slower growth of the market in other regions.

“We are also seeing that many microfinance institutions (MFIs)

have grown and are evolving to Tier-2 and Tier-1 size, which is also

opening up more investment opportunities. Additionally, up until

now we haven’t noticed any major defaults of institutions in this

market as we have in the other regions. This tends to reassure

new investors of the quality of the African MFIs despite their

often lower returns compared to some other markets,” he said.

In terms of MIV country allocation, Kenya and Nigeria are the

countries in which MIVs invested the most last year, whereas Zim-

babwe is in the top-10 list of preferred investment destinations

for equity funds.

The survey reveals that the African region will slow down next

year.

“If you look at the global picture in terms of forecasted growth,

MIVs are expected to grow at 6% next year – the lowest forecast-

ed growth in several years.African growth will certainly be lower

than in 2014, but we still expect it to be higher than in other

regions," said Lehner.

Moreover, markets are evolving very fast with important growth

and regulation changes, according to Lehner, who said that as

a consequence the monitoring of the market and of each MFIs

remains important.

“Issues such as overindebtedness and regulation of risk man-

agement as well as opportunities like mobile banking, housing

and energy loans are modifying the market very quickly and need

to be monitored closely," he said.

Incorporated in 2004 in Geneva, Symbiotics is an investment

company specialized in emerging, sustainable and inclusive

finance which offers market research, investment advisory and

asset management services.

Symbiotics is managing Regmifa, the largest regional debt

microfinance investment fund for Sub-Saharan Africa, dedicated

to fostering economic development through the support of micro,

small and mid-sized enterprises.

MICROFINANCE INVESTMENTS: AFRICA RECORDS HIGHEST GROWTH SINCE 2010

W

sion and distribution, from the Bouygues Group.

Laurent Clamagirand, CIO of AXA, said: “The combined factors of a severe shortage of power generation capacity in Africa and high rates of GDP and population growth give Eranove a significant opportunity to build a leading energy platform across the continent.”

“Eranove is already a successful and well established business, with strong man-agement and a large customer base. Our long-term investment and commitment to Africa will support the growth of Eranove

AXA Group through AXA’s Real Estate divi-sion, has taken a 18.6% stake in the Eranove Group, a West African utility company with operations in power generation, transmis-

DEALS

AXA ACQUIRES 18.6% STAKE IN UTILITY COMPANY ERANOVE

“Growth has been falling for the last four quarters and the manufacturing sector is now in recession with negative growth over the last two consecutive quarters. The CBN’s policy choice is not sustainable in the longer run. The only hope for success with the CBN’s current policy is a recovery in the oil price,” he said.

"Should the oil price fail to recover, the CBN will ultimately have no choice but to abandon the current rigidity of its FX regime and allow the NGN to find a more competi-tive rate. Regrettably, by this time avoidable damage would have been inflicted on the

domestic economy,” he added.Nigeria will not be eligible for re-entry for

at least 12 months from the date of exclu-sion, according to JPMorgan.


OCTOBER 2015


Like what you're reading?Stay up-to-date on African Asset

Management with AGF

NEWS

MOVERS & SHAKERS

Phatisa promotes Bradley to Joint Man-aging Partner Phatisa, a private equity fund manager that

invests throughout sub-Saharan Africa, has pro-

moted Stuart Bradley from Senior Partner to Joint

Managing Partner. Bradley joins Duncan Owen as

part of the firm’s senior leadership team. Bradley

has been an integral part of the Phatisa team,

since its inception in 2005. During his career, he

has raised in excess of $850m for African funds,

supported private equity, and worked closely with

the firm’s staff, investors and stakeholders alike.

Cattaneo to lead EAIF's growth driveThe Emerging Africa Infrastructure Fund (EAIF),

part of the Private Infrastructure Development

Group, has appointed Emilio Cattaneo as its first

Executive Director. In his role at EAIF, Cattaneo

will focus on implementing the Fund’s growth

strategy, securing deeper penetration of the

sectors EAIF lends to, providing strategic advice

to the board and strengthening and widening re-

lations with donor governments, banks, advisers

and key audiences in Africa and Europe.

Buchanan joins Maitland from CatalystMaitland, a global third-party fund administrator,

has appointed Charles Buchanan as Senior Busi-

ness Development Manager for Africa. Buchanan,

who joined the Business Development and Client

Management team on July 27, is based in Cape

Town, reporting to Andre le Roux, Maitland’s Head

of Business Development and Client Management

– Africa, based in Johannesburg.

Nqweni joins Barclays Africa as CEO of WIMIBarclays Africa Group has appointed Nomkhita

Nqweni as Chief Executive of Wealth, Investment

Management and Insurance (WIMI), effective

immediately. Nqweni, who heads wealth and

investment management at the bank, with R268bn

in AUM, will be responsible for the Absa Life,

short-term insurance, fiduciary and distribution

businesses in addition to her current portfolio

which includes wealth advisory, stockbroking and

asset management. Nqweni joined Barclays in her

current role in 2010.

deVere Group names Hobbs as its Chair-man

deVere Group, one of the world's largest inde-

pendent financial advisory organizations, has

named Peter Hobbs as its Chairman. Hobbs joined

deVere Group's Board of Directors in June 2013 in

a non-executive role. He was previously a former

director of Generali International and Generali

Pan Europe and ultimately responsible for the

Generali Group's strategic innovation programs

and developments in more than 60 countries

worldwide.

Giralt to lead BNY Mellon’s Global Tax ServicesBNY Mellon has appointed Mariano Giralt as head

of Global Tax Services, responsible for the growth

and development of this business. Previously he

was head of Tax Services for Europe, the Middle

East and Africa. Giralt will continue to report to

Dan Kramer, head of Global Fund Accounting and

Issuer Services Client Service Delivery at BNY

Mellon.

GIIN hires Balloch as COOThe Global Impact Investing Network (GIIN), a

nonprofit organization dedicated to increasing

the scale and effectiveness of impact investing,

has appointed Susan Balloch as its new Chief

Operating Officer. With more than a decade of

private equity experience, Balloch joins the GIIN

from an angel investment group Golden Seeds,

where she was a Managing Director. While at

Golden Seeds, she helped review and evaluate

investment opportunities and was a member of

the group that recommends companies to present

to investors.

as well as positively impact the countries it serves”,” he added.

Emerging Capital Partners (ECP), which holds a 55.9% stake in Eranove via its ECP Africa Fund II, has welcomed AXA as new shareholder.

Vincent Le Guennou, Co-CEO of ECP and Chairman of the Board of Eranove, said: “Having a top-flight investor like AXA Real Estate on board is great news for Eranove and a great pleasure for ECP.”

Formerly known as Finagestion, the Eranove Group was created when Bouygues combined the African assets of its subsidi-ary SAUR into a single company.

ECP first bought into Eranove’s capital in 2008 and acquired a majority holding a year later.

Eranove currently accounts for almost 70% of installed electricity generating capacity in the Ivory Coast, supplying 1,136 MW via two of its subsidiaries, Compagnie Ivoiri-enne d’électricité (CIE) and Compagnie Ivo-irienne de production d’électricité (CIPREL).

CIE operates six hydroelectric and a thermic power station and also manages the transport and distribution network. CIPREL operates one of the country’s most important thermal power stations, where the company is currently completing its expansion through one of the largest infra-structure investments in recent years in the Ivory Coast (EUR 343.6 million).

Phase one (111 MW gas turbine) opened in January 2014, while phase two (111 MW steam turbine) should start operation at the end of 2015.

Eranove is also represented in the water sector through Société de distribution d’eau de la Côte d’Ivoire (SODECI) and Séné-galaise des Eaux (SDE), which are by way of delegation of public service, the leading African players in producing and distribut-ing drinking water and sanitation.

Eranove has also focused on expanding across Africa in recent years, winning a technical support contract from Régideso in the Democratic Republic of Congo in 2012 and in June 2015, signing a contract to design, build and operate the hydroelectric power station at Kenié with the government of Mali, through their subsidiary Kenié Ener-gie Renouvable.

Although investment in Eranove is the first move into Africa by AXA Real Estate, Pierre


OCTOBER 2015


NEWS

The Pan African Housing Fund (PAHF), man-aged by Phatisa, has entered into an agree-ment with Tamarind Properties to develop 140 single-family homes in a residential development in Nakuru Town, Kenya.

The development, known as Nakuru Mead-ows, is on a 10-acre piece of land, overlook-ing Lions Hills, Sirikwa caves, and the busy Nairobi-Nakuru Highway near Nakuru’s Free Area trading centre.

Nakuru Town is located north-west of Nai-robi and is the fourth largest urban center in Kenya.

It faces rapid population growth, estimat-ed at two million residents, with a supply gap of 8,000 housing units each year.

Nakuru Meadows will help meet this demand.

Joe Mungai, Tamarind Properties’ Manag-ing Director, said that construction of the units will be done in two phases: “Phase one will comprise 104 units, and phase two 36 units. The estimated completion time is 24 months.”

PAHF is a private equity fund that provides risk capital to the fast-growing and lucra-tive middle and affordable housing sector in East and Central Africa.

The deal represents the Fund’s fourth and largest investment in Kenya, affirming its commitment to providing equity finance to experienced and reputable property devel-opers to enable the increase in the supply of affordable middle class housing in East Africa, Zambia and Mozambique.

Okomboli Ong’ong’a, Phatisa’s Partner for Eastern Africa, PAHF, said that Nakuru Meadows will be a game-changing develop-

DEALS

PAHF INVESTS IN KENYAN RESIDENTIAL DEVELOP-MENT

ment in Nakuru Town’s housing sector. “We are very optimistic that this co-invest-

ment with Tamarind Properties will have a significant impact on Nakuru reducing the housing shortage, and creating over 200 jobs during the construction period and close to 100 jobs after completion,” he said.

Aberdeen Asset Management has said it will acquire 100% ownership of Advance Emerg-ing Capital (AEC), a London-based special-ist investment manager with over $633m (£409m) across a range of investment funds.

The transaction is part of Aberdeen’s strategy to strengthen its alternatives capabilities to meet growing demand from investors that are looking to diversify their portfolios.

Martin Gilbert, CEO of Aberdeen Asset Management, said: “The acquisition of Ad-vance Emerging Capital brings to Aberdeen a dedicated and highly experienced fund management team, expands further our closed end fund business and adds to the range of alternative investment capabilities we already offer.”

“AEC investors will benefit from the management team being part of a larger, independent asset manager and the ability to draw on the Group’s established distri-bution and operational expertise in regard to closed end funds,” he said.

AEC manages the Advance Frontier Markets Fund and the Advance Frontier Opportuni-ties Fund, both of which invest into Africa and have a 32.9% and 26.8% allocation accordingly (as of July 31, 2015).

This step will provide the opportunity to expand the offering globally, across a wider range of additional strategies within the fund of closed end funds sector, when com-bined with the broader Aberdeen Alterna-tives capability.

The AEC team includes four investment professionals with over 50 years of com-bined investment experience.

They will be based in Aberdeen’s London office and will be part of the Group’s Alter-natives business which is led by Andrew McCaffery.

The team will be independent of Ab-


ABERDEEN ACQUIRES AD-VANCE EMERGING CAPITAL

Recent weakness in the Egyptian market is leading investors to look again for opportu-nities, but currency risks remain the major obstacle, according to Simon Kitchen, Direc-tor of MENA Strategy at EFG Hermes.

“Investors are looking for clarity on the FX policy. The Egyptian pound is overvalued right now. There is a lot of speculation when and how much it might devalue. And this is a big factor in investors’ calculations right now,” he said.

Kitchen stressed that there is not a lot of communication from the Central Bank of Egypt on this issue, so it’s difficult to pin down when the currency might move.

“The FX market is not working smoothly, so in some cases investors have found it slow to repatriate profits from investments in the country,” he added.

Kitchen said that at the moment he sees value in industrials in Egypt, adding that the problem for industrial companies for some time has been the shortage of energy.

“We see an improvement towards the end of this year, because it will be cooler and


EGYPT: INVESTORS HIT PAUSE ON CURRENCY RISKS

erdeen’s direct equity and fixed income teams.

Andrew Lister, Co-CIO of Advance Emerging Capital, said: “Aberdeen is an investment house we have immense respect for, and with which we share a similar investment philosophy and appreciation of the benefits of the closed end fund structure. Sitting within Aberdeen’s rapidly growing Alterna-tives business will, we believe, enable us to share ideas and best practice to the benefit of our existing investors.”

In line with Aberdeen’s fee policy, the AEC funds will not be double-charged on any Aberdeen funds held in the portfolios.

The AEC transaction is subject to reg-ulatory approval from the UK Financial Conduct Authority and has the support of the Boards of Directors of Advance Frontier Markets Fund and Advance Developing Markets Fund, to which AEC currently acts as Investment Manager.

It is intended to complete the transaction during the fourth quarter of 2015.

Vaquier, CEO, said that AXA's real estate and infrastructure division is already a diverse investor, which now has operations in 24 countries and investments across direct property and infrastructure.

“Our investment in Eranove is another milestone in terms of widening the global expansion of our real asset investments as we take a holistic approach to assets and industries to deliver long-term growth on behalf of our clients,” he said.


OCTOBER 2015


NEWS

it means less demand for electricity and that frees up gas for industrial use. But also Egypt is going to be importing more energy in late 2015, so that increases the availabil-ity of energy for industrial companies and that can lead to recovery in earnings,” he said.

He added that one could argue that there is value in real estate companies in Egypt.

“Real estate companies have traditionally been a very good hedge against devalua-tion and inflation, but they’ve often fallen short in terms of generating free cash flow. I would maybe prefer stocks in Egypt that are generating some yield where there is some free-cash flow for shareholders,” he told Africa Global Funds.

Kitchen said that overall he sees a recovery in the Egyptian capital markets compared to 2-3 years, when it was very quiet and expects it to continue over the next year.

When asked about opportunities in other North African markets, Kitchen mentioned Morocco, saying that although the country has gone through a lot of positive develop-ment, the Moroccan economy is still geared to that in Europe.

“Europe is still the major trade partner and the major source of investment. But the European economy is not particularly healthy right now,” he said.

“In terms of capital markets, Morocco has capital controls, and that means that the equity markets are still quite expensive. They’ve been underperforming for some time,” he added.

Emerging Capital Partners (ECP) along with its investment partners, have announced the sale of a 53.6% share of the Nigerian reinsurance company, Continental Reinsur-ance, to Saham Finances, the insurance arm of Saham Group.

Created in 1985, Continental Reinsurance (Continental Re) represents one of the main regional stakeholders in the reinsurance market.

The company enjoys significant geographic coverage with six regional offices across the continent (Nigeria, Cameroon, the Ivory Coast, Botswana Kenya and Tunisia), working

EXITS

ECP EXITS CONTINENTAL RE TO SAHAM FINANCES

in 44 different countries. Continental Re offers a full suite of both

treaty and facultative non-life and life rein-surance products.

C-Re began writing non-life insurance in 1987 and listed on the Nigerian Stock Exchange (NSE) in 2007.

In February 2007, through its Africa Fund II and Central Africa Growth Sicar, ECP invest-ed $25.8m for a 30% stake in C-Re.

Under ECP’s ownership, Continental Re has grown to become a leading pan-African reinsurer.

During its holding period, ECP and its investment partners supported the recapi-talization of the business, strengthened the senior management team and facilitated its regional expansion to support Continental Re’s growth ambitions.

Hurley Doddy, Co-CEO of ECP and outgoing Chairman of Continental Re, said: “ECP’s in-vestment in Continental Re highlights how we partner with high growth companies with proven business models and transform them into regional champions.”

“With ECP’s support, Continental Re has grown from a primarily Nigerian focused business into a leading pan-African reinsur-er, increasing its presence on the conti-nent from two to six countries. We believe that Continental Re will leverage Saham’s industry expertise and relationships across the continent to further achieve its goals in Africa and create value for shareholder,” said Doddy.

As the insurance arm of the Saham Group, Saham Finances is actively following its growth strategy in Africa and the Middle East.

It is present in 26 countries through 49 subsidiaries, including 28 insurance and re-insurance companies through 650 branches throughout Africa and has a team of 3 000 collaborators.

“The acquisition is part of the continual expansion plan of the group; this acquisi-tion allows Saham Finances to consolidate its development in Africa,” said Saham Finances in a statement.

Exchange Data International (EDI), a se-

ASSET SERVICING

EDI ADDS WORLDWIDE EQUITY ANALYTICS

curities and corporate actions reference data specialist, has added equity analyt-ics data, Worldwide Equity Analytics, to its securities data offering.

Jonathan Bloch, CEO of EDI, said: “As regulatory and compliance needs grow investment firms need more and more analytics in order to enable them to calculate and gauge risk and compliance with the myriad of new regulations.”

“Exchange Data International now provides analytics for both bonds and equities covering over 50 data points,” he told Africa Global Funds.

This new service enables clients to identify the sources of risk and returns in their portfolios and project their volatility.

It comprises a customisable set of more than 60 equity derived data fields such as Average Daily Volume, Simple Moving Averages, Alpha, Beta, and R-squared.

In addition to the analytics data, the service contains key reference and pricing data providing clients with a comprehen-sive overview of the global equity market.

Bloch said that the addition of the Worldwide Equity Analytics service was the logical next step after the launch last year of their bond analytics dataset.

“As a data provider it is important for us to ensure we supply clients with data that enables them to make informed decisions and allows them to comply with their risk management criteria,” he said.

The Worldwide Equity Analytics service is available as an end of day feed via FTP.

The file can be customised as regards data fields, exchanges or countries cov-ered.

EDI helps the global financial and investment community make informed decisions through the provision of fast, accurate timely and affordable data ref-erence services.

EDI’s extensive content database in-cludes worldwide equity and fixed income corporate actions, dividends, static reference data, closing prices and shares outstanding, delivered via data feeds and the Internet.

The firm covers all major markets with special emphasis on emerging and fron-tier markets in Africa, Asia, the Far East, Latin America and the Middle East.


OCTOBER 2015


ANALYSIS

SOUTH AFRICANHEDGE FUNDS: Not ready for ESG?South Africa formally encourages investors to integrate into their investment decisions sustainability issues such as environmental, social and governance (ESG). Anna Lyudvig explores whether SA hedge funds have been taking ESG issues seriously.

evelopments in South Africa, such as changes to Regulation 28 of the South African Pension Fund Act and the launch of the Code for Responsible Investing in

South Africa (CRISA) a few years ago, have put a growing emphasis on ESG (Environmental, Social and Governance) factors. South Africa mandates that institutional investors including pension funds “give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund's assets, including factors of an environmental, social and govern-ance character”.

Pension funds are one of the primary investors in South African hedge funds. While it seems that South African government is se-rious about sustainable investments, has the South African hedge fund industry been proactive with ESG implementation? James Brice, Managing Director at EBS Advisory, thinks that it hasn’t, say-ing that hedge funds have been “very slow to incorporate ESG into the decision-making frameworks”.

“In fact, since the key personnel have left GEPF [Government Employees Pension Fund] and PIC [Public Investment Corporation], the whole CRISA momentum has really been lost. At best, small investment firms have generated a policy and placed it on the website with no further action, but the ma-jority have not done even this,” he stresses.

Eugene Visage, Head of Hedge Fund In-vestments at Novare Investments, agrees, saying: “There has been increased awareness by investors towards this type of investments approach, but SA (and more specifically the local asset managers) are still lagging when compared to its international peers.”

“Even though some SA hedge fund managers have started incor-porating some of the ESG principals in their investments analysis, it is still in its infancy,” he adds.

For Claire Rentzke, Head of Manager Research at 27four Invest-ment Managers, South African hedge fund industry has been

“mostly reactive” with ESG implementation: “Probably there are a large number of industry participants who may say that they do integrate ESG factors into their analysis but that it is at a very superficial level.”

Rentzke says that ESG integration is one aspect of a manager’s policy regarding responsible investing and SA hedge funds in some instances do pay attention to some of these factors in their analy-sis process.

She points out that hedge funds in SA are predominantly long/short equity and the managers won’t disclose their short positions for fear of not ever being given an audience with management: “This curtails the extent to which they can then implement other aspects of responsible investing especially around engagement with companies.”

“Also those hedge funds that have trading books are not interest-ed in being long term, patient investors and for them the invest-ment case is all about exploiting a short term anomaly in the share price rather than investing long term, engaging with management and having a view on responsible investment,” she adds.

Nevertheless, EBS Advisory’s Brice argues that ESG factors can be part of strategies that include short sales of securities, saying that management feedback on topical issues should be incorporated into asset management strategies, rather than relying on published data.

“Shorting a stock is, in our opinion, legitimate if one feels that management's response to a critical issue that resulted in the share price decline is inadequate. Similarly, buying at the bottom of the cycle of a stock that has been hit by ESG issues, such as

D

“Even though some SA hedge fund managers have started incorporating some of the ESG principals in their investments analysis, it is still in its infancy

- Eugene Visage


OCTOBER 2015


ANALYSIS

Lonmin, is legitimate if we feel that management's responses are credible and are targeting the correct route causes,” he says.

ESG FACTORS AND INVESTMENT PERFORMANCE Some argue that ESG factors, when integrated into investment analysis and decision making, may offer investors potential long-term performance advantages. The link between ESG factors and investment performance was formalized by the United Nations in 2006 when it promoted the Principles for Responsible Investment (PRI), a set of practice standards offered for voluntary adoption by investors.

The PRI Initiative has quickly become the leading global network for investors to publicly demonstrate their commit-ment to responsible investment, and the number of PRI signatories exposed to hedge fund strategies is growing signifi-cantly each year.

For Rentzke, ESG factors can affect the performance of an invest-ment portfolio, although she says the evidence is a bit tricky and the time horizon a bit too short to be able to prove direct correla-tions: “Governance factors have been shown to have the biggest impact and there is evidence that suggests that poorly run compa-nies have poorer share price performance than well governed com-panies. When it comes to E and S then typically a major negative event will trigger a selloff in the share price.”

As a fund of funds, 27Four Investment Managers, a PRI signatory, applies its responsible investment polices at the level of manager selection. “We analyze the systems and processes that our under-lying managers have in place with regards to the integration of ESG factors into their investment research and portfolio construction,” says Rentzke.

She says that 27four assesses the ability of each asset manager that they use to integrate ESG factors into the investment pro-cess and the importance that sustainable investing plays within the organization: “27four recognizes the importance of long term sustainable returns and as such part of our asset manager due diligence process is centered on the asset managers’ commitment to responsible investing and ability to implement ESG analysis into their process.”

“Questionnaires centered on responsible investing are sent to the asset managers on a bi-annual basis. Not only is their expertise in this area assessed but also the developments and progress that they have made in the responsible investing space over the preced-ing six months,” she adds.

“We scrutinize the investment analysis process and the portfolio construction process to understand how the asset managers are building in an analysis of the various ESG factors and the impact this has on valuations and the ultimate portfolios. In this way we can see whether the skills exist in the investment team to properly analyze the factors and their impacts and understand if the manag-er is able to provide any specific ESG focus in the portfolio should clients have specific requirements in terms of their own responsi-ble investing policies,” she says.

Stephen Brierley, Head of Hedge Funds at Old Mutual Multi Manag-

ers (OMMM), one of the PRI signatories, says: “OMMM hedge funds does place an emphasis on ESG principles both through our qual-itative investment due diligence of managers and further through our corporate governance risk review. The former is performed by our investment team, the latter by a third party. If these principles are lacking in a manager we may not invest with them.”

He adds that businesses that have poor ESG principles and prac-tices may not receive capital investment by shareholders, par-ticularly those investors that have a focus on ESG practices: “This would affect business share price and performance. Certain ESG regulations which are avoided by businesses may affect them in

the long run in the form of fines and loss of revenue i.e carbon tax emissions.”

Brierley says that Governance is the principle which will have the greatest effect on valuation: “Managers will also evaluate the impact that businesses have on the environment and society although it is difficult to include these in valuations. Managers are not likely to avoid a business which does not have a strong social or environmental process, they are however likely to place a higher multiple on these businesses.”

According to Brierley, OMMM monitors ESG risks through its external corporate governance risk review, which takes place on an annual basis and through an ongoing interaction with managers: “During manager selection, poor ESG practices will affect OMMM’s manager ratings and rankings of these managers.”

FURTHER ADOPTION?While industry experts agree that adoption of ESG principles has been slow in the industry, they also agree that there are certain benefits of sustainable investing. Brierley says: “This is a benefit to society, the planet and the sustainability of both in the long run. In business this it is only fair and equitable to all to follow proper principles and practices of good governance.”

Rentzke adds: “It allows and facilitates a long term time horizon which is typically where we should be looking when committing capital that is long term in nature such as pension fund assets. Not only do well run companies tend to perform better but where externalities can be priced in and the cost of those externalities reduced it will impact positively on the bottom line.”

There are many issues to consider in relation to responsible investment and hedge funds. The fact that hedge funds, by their nature, are unlikely to be long-term investments make the align-ment of long-term ESG interests a challenge. Udesh Naicker, Head of Hedge Funds at the Financial Services Board of South Africa, concludes: “The adoption of ESG principles is an issue that may be addressed by hedge fund managers in their investment mandate. As the regulator, we do not prescribe issues that the managers must include in their mandates.”

“The adoption of ESG principles is an issue that may be addressed by hedge fund managers in their investment mandate

- Udesh Naicker


OCTOBER 2015


Q&A

Actis: Longest Standing Investor

Actis, an emerging markets investor, focus-es on investments in Africa, Asia and Latin America. The firm has a strong track re-cord of backing high-quality businesses in Africa with over $3bn invested in 23 coun-tries across the continent to date. AGF’s Managing Editor Anna Lyudvig speaks with David Cooke, Director at Actis, about the firm’s investment strategy in Africa, oppor-tunities and challenges.

ANNA LYUDVIG (AL): DAVID, PLEASE TELL US ABOUT ACTIS’S FOOT-PRINT IN AFRICA.

DAVID COOKE (DC): Actis was established in 2004, building on a 60 year legacy after spinning out from CDC Group, the UK develop-ment finance institution. We’ve invested over $3bn of capital in 23 African countries – and that’s across three different platforms. We have a private equity business, an energy fund and a dedicated Sub-Saharan Africa real estate fund. Our Africa team consists of c.30 professionals operating from four offices on the ground: Cairo, Lagos, Nairobi and Johannesburg. We’ve done 70 deals and we’ve exited 43 of those. That probably makes us the longest standing investor in the continent with the most experienced track record.

AL: HOW DID THE AFRICAN PRIVATE EQUITY LANDSCAPE CHANGED OVER THIS TIME?

DC: Ten years ago in the African context, having capital was almost a differentiator in itself. Today with the growth of the private equity asset class in the region and new funds being set up, if it’s just about capital, then we probably got the wrong partner. So how you differentiate yourself with owners and managers of businesses is critical. What we do is that we’ve chosen specific sectors, so we


OCTOBER 2015


Q&A

can demonstrate real value add in terms of understanding of the business and its sector, having local teams on the ground gives us deep ingrained local knowledge. Also, the owners and managers of businesses are far more familiar with what private equity can do for them as we continue to demonstrate success stories.

AL: TELL US A BIT MORE ABOUT YOUR INVESTMENT STRATEGY IN AFRICA?

DC: The big drivers of our strategy across all three businesses are very similar – rising domestic consumption driven by the rapid expansion of the new consumer class, and the need for sustained investment in domestic infrastructure; education, energy, financial institutions, healthcare and real estate.

Within our energy fund we focus on power generation and power distribution. For example, Actis Energy 3 has invested in Came-roon’s national grid and created a $1.9bn pan-African renewable energy platform.

Our real estate strategy is focused on retail and office develop-ments in East, West and Southern Africa, excluding South Africa. Some of the developments include Ghana’s first green office building One Airport Square in Accra, and East Africa’s largest retail centre, Garden City in Nairobi.

And then our private equity business focuses on four sectors: financial services, consumer, industrials and healthcare. Within the first two sectors we invest around 70% of our private equity capital. Some of our recent deals include investment in Coricraft Group, one of South Africa’s leading home furnishings retailers and invest-ment in Integrated Diagnostics Holdings (IDH), the largest private sector healthcare diagnostics service provider in Egypt.

AL: DOES YOUR AFRICA STRATEGY DIFFER FROM OTHER EMERGING MARKETS?

DC: Our Africa strategy is no different to what we do in other emerging markets. It’s remarkable how similar the underlying needs of businesses are, whether they are in Africa, Latin America, India or China. We are consistent with our strategy, however, having local presence on the ground is critical for managing risks and being able to identify the value in the opportunities that we see.

AL: WHAT’S YOUR TYPICAL TICKET SIZE FOR AFRICA?

DC: Within our private equity business, we are looking to invest a minimum of $50m in any one transaction, and up to $150m of our fund capital. We’ve done a lot larger transactions than that when we’ve brought in some co-investors. Most of what we do is con-trolled investments, but we are also very familiar and comfortable with taking other co-investors – that might be a minority type of deal.

AL: WHAT RETURNS ARE YOU TARGETING?

DC: We look at 25% gross IRR

AL: ARE THERE ANY MARKETS THAT STAND OUT FOR ACTIS AT THE MOMENT?

DC: We would look across the continent for opportunities. We’ve invested in North, East, West and Southern Africa within our cur-

rent fund. Given the size of the Egyptian, Nigerian and South African economies, that’s where we’re going to see the larger ticket sizes of the private equity in the continent and where we’re going to see the most frequent opportunities. But having said that we’ve recently invested in an education provider in Tunisia and in a retail business in Kenya. We are largely looking at capital transactions in West Africa as well.

AL: AND WHAT’S INVESTORS’ APPETITE FOR AFRICAN PRIVATE EQUI-TY?

DC: Over the last 10 years we’ve seen investors’ appetite grow for different parts of emerging markets. And right now Africa is a pop-ular place for investors to seek growth opportunities. We are seeing a substantial increase in investors’ appetite for the Africa compo-nent in our pan-Emerging Markets strategy. We are seeing a number of large funds being raised in Africa and I don’t see that going away. I think provided that investors continue to see the returns despite risks that appetite will remain the same.

AL: CAN YOU TOUCH A BIT ON THE CHALLENGES OF INVESTING IN AFRICA?

DC: I think right now in terms of 2015, the strength of the US Dollar has been a real challenge. But I think some of the more commonly cited challenges, around political instability in particular, often present very interesting opportunities. Take Egypt for example. Right through the Arab Spring we continued to invest in in the country. A lot of investors walked away from Egypt at the time. We decided to focus on defensive sectors and through that period we’ve made fantastic returns by investing in businesses that we understand well.

I think if you are on the ground, some of these challenges present really interesting opportunities and our long-term view allow us to invest and operate in the region in spite of occasional macro-economic and political volatility. We understand the local market dynamics very well and will look to continue to invest across all regions in Africa

AL: WHAT CAN WE EXPECT FROM ACTIS IN THE NEAR FUTURE?

DC: I think it’s interesting that the current global macro uncertain-ties are presenting some interesting deal opportunities. As owners of businesses look to de-risk, that presents some interesting opportunities. We can’t disclose specific opportunities that we look at, but we have a couple more deals in the pipeline.

AL: WHAT IS YOUR OUTLOOK FOR AFRICAN PRIVATE EQUITY?

DC: I think we will continue to see the investor opportunity within the emergence of successful high growth companies, either com-panies that are striving to become national champions or larger scale companies that are looking to expand into other parts of the region. If you look at our pipeline at the moment, we see a number of those opportunities. Actis’ experience, global network and sector specialisation positions us to work with investee companies on all aspects of their growth and value creation. I think one has to in-creasingly understand that if you are able to demonstrate the real value add, Africa is a very positive story.


OCTOBER 2015


MARKET

MAURITIUSGateway to Africa

As the African continent continues to attract global interest, Mauritius is rising to become the natural gateway for investing in Africa, writes Shaffick Hamuth, Economist and former Senior Investment Advisor of the Board of Investment, Mauritius

ith unprecedented potential of growth, a rising mid-dle-class and rapid urbanisation, today Africa offers to the global investor community unmatched investment

opportunities in various sectors comprising infrastructure and real estate, financial and banking services, telecommunications and mobile telephony, consumables and agribusiness as well as energy, to mention but a few. And this is where Mauritius comes into the picture.

Risk mitigation and investment protection in the region through its wide network of Investment Promotion and Protection Agree-ments (IPPAs), fiscal efficiency through its growing network of Double Taxation Avoidance Agreements (DTAAs), preferential market access through regional trading blocs, a hybrid legal system, state-of-the-art infrastructure, the presence of international players and a readily available pool of professionals are just some of the key benefits that Mauritius offers as the financial and investment centre of Africa.

The growing use of the Mauritian platform by international invest-ment and private equity funds confirms the island's position as the preferred jurisdiction for investing in Africa. Today the country is home to some of the leading actors in the African private equity space including Actis, Helios and the African Development Bank

W

(AfDB) to mention but a few. The AfDB currently houses more than 50% of its African private equity structures in Mauritius.

Mauritius has the most conducive enabling environment in Africa for private equity (PE) funds, in terms of general investment climate, perceived low political risk, and availability of financial service pro-viders backed by skilled professionals, and enabling regulatory and institutional frameworks. Mauritius is equally popular among fund managers and investors.

NATURAL PLATFORM FOR PE FUNDSA private equity fund can be structured as a GBC1 vehicle or even as a limited partnership. The Limited Partnership Act (LPA) was enact-ed in 2011. It aims at enhancing the use of the Mauritian invest-ment platform primarily by US and European private equity funds foraying investment opportunities in African and Asian markets. The principal attraction of the limited partnership for the partners is its tax transparency and neutrality potential. Private equity funds holding a Category 1 Global Business Companies (GBC1) are subject to tax at the maximum effective rate of 3% on its foreign sourced income.

PE funds may also accede to the benefits of Double Taxation Avoidance Agreements (DTAAs) signed by Mauritius. Mauritius has a network of 41 DTAAs, 17 of which are with African countries. In addition, tax exemption on offshore dividends, the non-existence of capital gains tax or withholding interest, the absence of duty on issued capital, unrestricted repatriation of profits and capital, and the distinct advantages of being a treaty-based jurisdiction create an appealing and conducive environment for PE funds in Mauritius.

Furthermore, through its network of 19 Investment Promotion and Protection Agreements (IPPAs) signed with African nations, Mauri-tius offers unparalleled risk mitigation with respect to investments in Africa. IPPAs normally guarantee the following to the investors from the signatory States:

• Free repatriation of investment capital and returns;• Guarantee against expropriation;• Most favoured nation rule with respect to treatment of invest-ment, compensation for losses in case of war or armed conflict or riot; and

• Arrangement for settlement of disputes between investors and the contracting states.

Mauritius is thus a natural platform for private equity investments into Africa. The country, hailed as the star and key of the Indian Ocean, offers a very stable and safe political and economic envi-ronment and is usually referred as the example for many African countries. Mauritius has also a strategic geographical location, with


OCTOBER 2015


MARKET

regular direct flights across the Indian Ocean Islands, Africa, Dubai, Europe and other Asian Countries.

CAPITAL MARKETSIn line with its internationalization strategy, Mauritius, through the Stock Exchange of Mauritius, has initiated a framework re-engineer-ing process to cater for a broader range of products to be listed on the Exchange with a view to attract regional and global capital. For instance, Listing Rules have been reviewed and made more flexible for the listing of Global Funds and other rules introduced for the listing of:

• Global Business Companies and specialist debt instruments targeted towards qualified institutional and retail investors, including Eurobonds;

• Depository Receipts and Mineral and Exploration Companies;• Exchange Traded Funds;• Exchange Traded Notes and Structured Products.

Mauritius Stock Exchange has positioned itself as one of the only two African Exchanges offering structured products in their port-folio. Equity and debt products may be listed, traded and settled in MUR, USD, EUR, GBP and ZAR and investors now have the option to invest in a wider range of foreign products as well as Mauritius domestic companies.

All these measures and co-op-eration with other Exchanges, the recent one being with The Nation-alStock Exchange of India, depicts the Authorities’ determination and ambition in making Mauritius stand as a hub for investing into Africa and also as a strong listing platform for global funds.

It must be pointed out that the Stock Exchange of Mauritius (SEM) is slowly becoming adynamic and reliable regional exchange platform. Though being a small exchange, the SEM has over the yearsmanaged to be featured in the index of someof the major international institutions such as the S&P All Africa equity index.

Furthermore, the SEM isgradually shifting from an equity-centric domestic exchange to a multi-asset class exchange, thus becom-ing one of the first exchanges listed in Africa, where investors and investment firms can list, trade and settle structured products in USD, EUR and GBP. The Africa Sustainability Fund and Novare Africa Property Fund One are afew examples of the newly listed special-isedstructured funds on the Mauritian Exchange thathave been quite successfully among professional investors.

Moreover, African-based ventures and corporate firms like mining companiesare graduallystarting to use the Mauritian exchange as a regional platform to raise debt or equity at an attractive rate thanks toseveral low costfees structures provided by the SEM. In order to encourage and promote sustainable reporting, the SEM has recently launched a Sustainability Index that has been inspired from the Global Reporting G4 guidelines.

In a near future,SEM is aspiring to emerge as a capital raising platform for African-focused investments routed through the Global Business Sector. The major flaw faced by the SEM to achieve

its ambition, liesin its small size to attract adequate financial players. One strategy currently in used by the SEM to counter this weakness, is tocollaborate with other regional exchanges such as the Maldives Stock Exchange and National Stock Exchange of

India. In doing so, SEM is hoping to create synergies between each exchangewhich will help to spur more growth and op-portunities in terms of financial product developments, to helping the Mauritian Exchange to better integrate within the international financial system.

SECTOR OPPORTUNITIESWhen considering a sector, foreign inves-

tors must keep in mind the potential of serving the entire region from Mauritius.

One must not forget the planned billions of rupees of investment in the port area expansion to convert Port Louis, the capital, into a regional shipping hub, while the recently modernised airport is already on its way to become an aviation hub. The country also enjoys good infrastructure in terms of roads logistics, telecommu-nications and valuable human capital that is bilingual and literate. Mauritius is also positioning itself as a real estate landmark with

many interesting offerings to global investors. Other emerging sectors ripe for investment include agribusiness, ICT, tourism, manufacturing, knowledge and medical sectors, seafood and the Ocean Economy.

OCEAN ECONOMYThis is a term coined to define the vast untapped opportunities presented by the Exclusive Economic Zone of Mauritius, which is 1,000 times the size of Mauritius Island (itself about 2,000 sq km), and another continental shelf of 396,000 square kilometres co-managed with the Republic of Seychelles . The Mauritian govern-ment ambitions to make the marine and allied sectors an impor-tant pillar of the economy, with such activities as shipbuilding, bunkering, fishing and fish processing for export, exploration of our seabeds for polymodules, hydrocarbons and minerals. Extraction of deep sea water rich in nutrients is envisaged for green cooling technologies as well as for use in high end aquaculture and sea-weed culture, cosmetics and pharmaceuticals, agrochemicals, water bottling and thalassotherapy. Ocean renewable energy is another possible venture.

The recent Economic Vision 2030 spelt out by the Prime Minister Sir Anerood Jugnauth, in line with the Government Programme presented in January 2015 and the Budget 2015/2016, aims to drasti-cally transform the economy, giving birth to new emerging sectors, while consolidating existing ones, the objective being to turn Mau-ritius into a high-income country. The future indeed looks bright.

Shaffick Hamuth

“Mauritius has the most conducive enabling environment in Africa for private equity funds

- Shaffick Hamuth


OCTOBER 2015


ANALYSIS

SOUTH AFRICA:Passive Investment Products

Investment in South African passive investment

products grows by R100bn over past two years to

R247bn, writes Mike Brown, Managing Director,

etfSA.co.za

he relatively small size of the passive index tracking investment business in South Africa, relative to the well-established active investment management industry in the country, is often subject to

comment. However, there has been some measurable swing to passive invest-ment products in recent years. Back in 2010, passive investment products were found to account for less than 1% of the assets under management in the retail unit trust industry.

However, as at mid-2015, the combined assets under management by South Af-rican index tracking ETFs and passive unit trusts had risen to R143bn, which is an estimated 11% of the total R1.3trn under management by active investment unit trust products. If you add the holdings of South African assets by international investors, through ETFs listed on global stock markets (outside of South Africa) which accounts for an estimated R97.4bn, the total passive assets under man-agement (AUM) rise to R247bn, or some 20% of the AUM of the actively managed unit trust products available to retail investors in South Africa.

INVESTORS IN FOREIGN BASED SOUTH AFRICAN ETFSThere are currently five dedicated Exchange Traded funds (ETFs) listed on stock markets in the USA (1) and in Europe (4) that track, either the MSCI Top 50, or the FTSE/JSE Top 40 indices of South African equities. As at end August 2015, the total assets under management (AUM) in these ETFs was $428m (R5.78trn).

In addition, there is significant foreign investment in emerging market ETFs, which invest in broad emerging market indices. The MSCI (Morgan Stanley Com-posite Indices) emerging market index, for instance, covers 23 emerging markets in Asia, Europe, Africa and South America. South Africa currently makes up 8% of the index weighting of this MSCI Emerging Market index. Currently, over 20 ETFs in Europe offer exposure to broad emerging market indices and 60 USA funds

T


http://etfSA.co.za

OCTOBER 2015


ANALYSIS

track these indices. Total AUM is $90.2bn. The 8% share of South Af-rica in the weighting of emerging market indices accounts for $7.2bn (R97.4bn).

SOUTH AFRICAN INDEX TRACKERSThere are 70 ETPs listed on the JSE (ETFs and ETNs), which as at 30 June 2015, had a market capitalisation of R128bn. In addition, 28 index tracking unit trusts are currently available to retail investors in the local market, accounting for AUM of R15.4bn.

The South African passive industry in mid-2015, therefore, ac-counted for a value of R143.4bn AUM, well up on the R54.4m AUM as at the beginning of 2013. The passive investment product indus-try is one of the fastest growing investment sectors in the South African market.

TOTAL PASSIVE ASSETS UNDER MANAGEMENTThe corresponding table summarises the total assets held in pas-sive products, both in South Africa and, through exchange listed products in South African assets offshore.

The offshore holdings, either directly or indirectly, in South African equities has fallen from $10.4bn in early 2013 to $7.6bn at present. This largely reflects the declining attraction for the global

1. South African Index Trackers US$ (million) Rand (million) January 2013 (R million)

A) SA Exchange Traded Products (ETPs) (Listed on the JSE)

Exchange Traded Funds (ETFs) - 69 403 41 663

Exchange Traded Notes (ETNs) - 58 612 6 107

Sub-total - 128 015 47 770

B) Index Tracking Unit Trusts 15 456 6 630

Total South Africa - 143 471 54 400

2. Foreign ETPs

A) South Africa only funds 428 5 777 7 816

B) Emerging Market ETFs (SA allocation 8%)

Europe (US$) 8 056 million 644 8 694

USA (US$) 82 131 million 6 570 88 695 85 800

Total Foreign ETP Investment in SA 7 642 103 167 93 616

GRAND TOTAL 246 638 148 016

Source: etfSA.co.za / Profile Datawww.etf.com; www.justetf.com

United States AUM (US$ million)

iShares MSCI South Africa 345

Europe

HSBC MSCI South Africa 6

iShares MSCI South Africa 28

Lyxor South Africa – FTSE/JSE Top 40 38

RBS Market Access FTSE/JSE Top 40 11

Total USA & EuropeRand Value ZAR/US$ 13,5

US$428R5 778

PASSIVE INVESTMENT FUNDS – TOTAL ASSETS UNDER MANAGEMENT (AUM) - AS AT 30 JUNE 2015

SOUTH AFRICAN ETPS LISTED IN EUROPE AND USA investor of emerging market equity investments, but this is likely to be cyclical and should recover in time. Of course the depreciation of the rand (from ZAR9 to the US dollar) between early-2013 and mid-2015 (ZAR13.5 to the US dollar), has absorbed this decline in rand terms. Since 2006, the local ETP industry has grown from nine products, with R12bn under management to the present total of 70 products with R128bn AUM. Of particular interest is the sharp increase in the number of Exchange Traded Notes (ETNs) and the assets under management in ETNs in the past few years. ETNs are popular with certain institutional and segregated portfolio holders because of their low cost, near zero tracking error and high liquidity when dealing through market makers.

In addition, there has been a steady increase in the number of passively managed unit trusts in South Africa. In late 2012, there were 15 passive unit trusts with AUM of R6.63bn. As at 30 June 2015, this total had risen to 28 passive unit trusts with AUM of R15.46bn. Ten different asset managers are offering index tracking unit trusts to the South African retail investor.

FOREIGN PRODUCTS TRACKING SOUTH AFRICAN ASSETSThere are currently five ETFs listed on foreign exchanges that track either the MSCI or S&P South African equity market indices. These Funds have $428m (R5.78bn) AUM. This is down from $864m in Janu-ary 2013, reflecting the current slump in emerging markets.

BROAD EMERGING MARKET ETPSMany global investors look to gain exposure in developing nation equity markets, through country-fund type ETFs, or else using the broader aggregate emerging market ETFs. South Africa contrib-utes a weighting of 8% (behind China, Korea, Taiwan) in the broad emerging market MSCI index and so forms an important component of such global exposure to South African shares. There are some 80 emerging market ETFs, listed in Europe and the USA stock markets and these funds, with their AUM, are detailed on the etfSA.co.za website.


http://etfSA.co.za

OCTOBER 2015


ANALYSIS

South Africa has a deep pipeline of available infra-structure assets, affirm Mark van Wyk (top), Head of Impact Investing, and Kasief Isaacs (bottom), Port-folio Manager: Infrastructure Development Fund, Mergence Investment Managers

SOUTH AFRICA: The case forinfrastructureinvesting

overnments around the world are looking to private funding to contribute to economic and social infrastructure development ranging from rebuilding aging infrastructure to building it from scratch, such

as in large parts of Africa. Whereas foreign direct investment forms the corner-stone of infrastructure development in many African countries, South Africa is in a unique position to source funding locally given the strength and depth of its financial markets and its approximately R4trn long-term retirement savings pool.

Indeed, there is a case to be made for infrastructure investing right now. The macro-economic environment in South Africa is currently characterized by slow economic growth coupled with increasing inflation expectations. Such an environment is ideally suited to the infrastructure investment asset class as the typical earnings drivers of infrastructure assets are not dependent on economic growth and also benefit from increasing inflation.

In addition to the right macro-economic environment, South Africa also has a regulatory enabling environment in the form of Regulation 28 and the Infrastruc-ture Development Act, as well as experienced local fund managers able to offer competitive management fees and demonstrate a specific infrastructure track record.

Yet despite these positive factors, allocations to this asset class still represent less than 0,3% of total asset allocations (included in “Other” in the SA institu-tional asset allocation graph). This is despite “Other” return expectations being higher when compared to the remaining asset classes.

Benchmark data for asset allocations and track records for infrastructure funds are available internationally. Allocations in South Africa are lagging more devel-oped countries such as Canada and Australia, where some pension funds have allocated up to 15% of their capital to infrastructure as an asset class.

BENEFITS FOR PORTFOLIOSIt appears that more information and understanding of the infrastructure asset class is needed to enable the boards of trustees of retirement funds to make allocations to infrastructure. Benefits can be summarized as follows:

• Stable long-term cash flows – infrastructure assets provide essential services (think hospitals, prisons, roads, rail, power plants and the like). Demand is often inelastic and therefore there is a very stable return stream.

• Diversification – risk premiums and inflation protection characteristics pro-vide low correlation to other major asset classes.

• Inflation protection – asset incomes are highly predictable and annual in-creases are linked to inflation.

G


OCTOBER 2015


ANALYSIS

• Low sensitivity to GDP – compared to other asset classes, infra-structure has a low sensitivity to changes in GDP due to inelastic demand and price insensitivity.

• Attractive long-term returns – median net internal rates of return for most unlisted infrastructure funds range from the mid-teens to low 20’s.

In addition, according to Credit Suisse Asset Management, adding infrastructure to an institutional portfolio improves the return per unit of risk, measured by a higher Sharpe ratio (“Can infrastructure investing enhance portfolio efficiency?”).

WHAT IS AVAILABLE?South Africa has a deep pipeline of available infrastructure assets, with government stating it has over 600 “shovel-ready” programmes waiting for implementation. The renewable energy programme has been highly successful and has provided the model for how infrastructure projects can work. Projects are gathering momentum, supported by various government initiatives including Operation Phakisa and the Presidential Infrastructure Coordinating Committee (PICC).

Operation Phakisa is a government initiative designed to fast track the implementation of solutions on critical development is-sues, including those highlighted in the National Development Plan 2030 such as poverty and unemployment. The PICC is mandated by Cabinet to plan and coordinate a National Infrastructure Plan.

The PICC alone has identified 18 Strategic Infrastructure Projects including schools, hospitals, port expansions, new transport and logistics corridors, additional water infrastructure and expansion of the existing energy procurement programmes. Government is looking to increase and strengthen its partnership with the private sector to not only finance but also to lead the construction and operation of many of these projects.

UNDERSTANDING RISKSWhile infrastructure presents an attractive investment opportuni-ty, large capital intensive projects are not without risk. While the Gautrain project seems to be turning a corner, its early years were

beset with major cost overruns and delays. Similarly, both Eskom’s new flagship power station builds, Kusile and Medupi, are running around two years behind sched-ule with the latest cost estimates at least double what was initially budgeted.

Understanding and prioritizing this ever expanding universe of projects and programmes requires an in-depth under-standing of the different risk and reward profiles of the underlying assets. At Mer-gence we map each opportunity using a risk and reward continuum which classifies projects based on project specific charac-teristics such as certainty of volume and price risk.

WHAT SHOULD TRUSTEES DO?The first step to making an allocation to infrastructure for funds is to determine what role infrastructure should play within the portfolio. Once the investment policy statement has been amended to adjust for the expanded investment universe, a holistic look at what particular role infrastructure should play can help determine how to invest in the asset class.

Areas to emphasize while making these decisions involve align-ment of interests with managers, assessment of the management team’s depth and breadth, and ensuring moderate limits on asset leverage. We generally advise that infrastructure allocations are suitable for pensioner and active portfolios.

We believe there is some urgency around the need for investment into infrastructure. The National Development Plan needs to be carried out; infrastructure development not only creates jobs and boost economic growth, but it also builds communities and creates a better society into which members will retire. There is also the merit of investing in assets that have a positive economic spinoff, as infrastructure spend has the potential to boost GDP growth.

In meeting their aim of matching long-term liabilities to assets – and considering broader societal needs - we strongly encourage boards of trustees to consider infrastructure investment in their allocation choices.

SA INSTITUTION ASSET ALLOCATIONAverage asset Allocation and expected real returns per asset class

Source: Alexander Forbes Large Manager Survey

Medupi Power Station - development of the coal yard 2014


OCTOBER 2015


REGIONAL PERFORMANCE

AFRICA EQUITY INDICES (GROSS TOTAL RETURNS USD) AFRICA SOVEREIGN BOND INDICES (TOTAL RETURNS USD)

AFRICAN MARKETSPERFORMANCE

Source: S&P Dow Jones IndicesSource: S&P Dow Jones Indices

Country Interest Rate (%)

Inflation Rate (%)

CPI Unempl. Rate (%)

GDP Growth Rate (%)

Debt to GDP (%)

Botswana 6.00 3.00 182.00 20.00 2.50 23.10

Cameroon 2.45 3.14 108.00 3.80 5.10 19.90

Cape Verde 7.50 0.30 120.00 15.80 0.10 114.00

Côte d'Ivoire 3.50 1.20 - 5.30 9.50 36.41

Egypt 8.75 7.90 165.00 12.70 3.00 90.50

Ghana 25.00 17.30 153.00 5.20 3.90 67.60

Kenya 11.50 5.97 161.00 40.00 5.50 49.80

Malawi 25.00 23.00 182.00 6.60 6.00 18.00

Mauritius 4.65 1.10 108.00 7.80 3.00 52.80

Morocco 2.50 1.70 116.00 8.70 4.30 63.89

Mozambique 7.50 2.28 116.00 17.00 5.90 55.40

Namibia 6.50 3.40 113.00 28.10 4.20 24.00

Nigeria 13.00 9.00 175.00 7.50 2.35 10.50

Rwanda 6.50 2.20 - 3.40 7.00 28.00

South Africa 6.00 4.60 116.00 25.00 1.20 39.00

Swaziland 5.50 5.40 - 28.50 2.50 9.90

Tanzania 12.00 6.40 159.00 10.30 6.50 39.90

Tunisia 4.75 4.15 127.00 15.20 0.70 47.50

Uganda 16.00 7.20 227.00 4.20 4.90 34.70

Zambia 12.50 7.70 - 15.00 7.10 31.00

Zimbabwe 11.94 -2.77 - 11.30 4.00 77.00

AFRICA ECONOMIC INDICATORS (as of 5/10/2015)

Source: Trading economics, African Central Banks

The Bank al-Maghrib (BAM, the central bank) kept the policy interest rate unchanged at its monetary policy meeting on September 22. The rate has now remained at 2.5% since December 2014, when it was lowered by 25 bps. Jacques Verreynne, analyst at NKC African Economics, said given that the current exchange rate regime has served the country well, the shift to a fully floating regime is expected to take a few more years. The authorities will be particularly wary of liberalizing the regime at a time when global market uncertainty is high. “We expect the Moroccan authorities to take a cautious approach and to wait until global market conditions are stable enough before making the transition to a floating exchange rate regime. In the meantime, though, there is little risk to the currency peg as forex reserves are high and the current account deficit is fairly small. As a result, we expect the dirham to remain stable against the dollar and euro over the short to medium term.”

COUNTRY FOCUS: MOROCCO

Country Sep-15 3 Month 1 Year

Botswana -5.55% -7.80% +5.45%

Cote d'Ivoire +1.78% +11.77% +16.08%

Egypt +1.43% -13.57% -22.87%

Ghana -2.58% -5.40% -26.22%

Kenya +4.45% -14.70% -21.06%

Mauritius -1.35% -4.65% -12.72%

Morocco -2.28% -3.68% -6.83%

Namibia +0.22% +0.54% +10.84%

Nigeria +6.41% -9.22% -12.72%

South Africa -6.43% -17.87% -15.60%

Tunisia -4.49% -5.78% -1.23%

Zambia -25.82% -36.97% -47.14%

Zimbabwe -2.31% -12.58% -19.42%

Country Sep-15 YTD 1 Year

Botswana +0.31% -4.04% -5.28%

Egypt +1.65% +0.97% +6.00%

Ghana +5.23% -1.02% +5.39%

Kenya -3.98% -14.18% -13.33%

Mauritius -0.42% -5.88% -5.46%

Morocco -0.06% -4.67% -4.25%

Namibia -3.80% -12.81% -13.01%

Nigeria +2.89% +1.80% -15.05%

South Africa -4.25% -13.90% -12.71%

Tanzania +0.37% -7.98% -10.70%

Tunisia -0.28% -1.10% -3.10%

Uganda +1.50% -21.41% -24.18%

Zambia -25.93% -39.26% -40.74%


OCTOBER 2015


FUND PERFORMANCE (USD RETURNS)

DISCLAIMER: All data is provided “as is” for your information and personal use only, and is not intended for trading purposes or advice.

YTD 1 Month 1 Year 3 Year 5 Year AUM ($m) Strategy Focus Domicile Type Start

Allan Gray Africa Equity Fund (as-of 30/09/15)

-24.70% - -35.20% -4.80% -0.90% 206.00 (09/15) Equity African region Bermuda Open-End 7/98

Allan Gray Africa ex-SA Bond Fund (as-of 30/09/15)

-12.10% - -15.80% - - 147.00 (09/15) Fixed Income Africa ex-SA Bermuda Open-End 3/13

Allan Gray Africa ex-SA Equity Fund (as-of 30/09/15)

-24.70% - -38.10% -3.80% - 210.00 (09/15) Equity Africa ex-SA Bermuda Open-End 1/12

Alquity Africa Fund (M) (as-of 07/10/15)

-21.53% - -29.78% -18.80% - 84.16 (08/15) Equity African region Luxembourg SICAV 6/12

Arisaig Africa Consumer Fund (as-of 07/10/15)

-18.63% - -22.63% - - 442.14 (09/15) Equity African region Mauritius Open-End 1/07

Ashburton Africa Equity Opportunities Fund (I) (as-of 07/10/15)

-20.56% - -31.37% - - 25.97 (09/15) Equity African region Luxembourg Open-End 6/13

Bellevue Funds Lux - BB African Opportunities (as-of 07/10/15)

-16.41% +2.17% -24.71% - - 72.79 (10/15) Equity African region Luxembourg SICAV 6/09

Commonwealth Africa Fund (as-of 03/09/15)

-11.35% - -12.45% - - 2.22 (10/15) Equity African region USA Open-End 11/11

Cornhill Management - WIOF African Performance Fund (A) (as-of 07/10/15)

- +3.46% -25.68% -16.87% - 5.87 (10/15) Mixed African region Luxembourg UCITS III 11/08

Coronation Africa Frontiers Fund (as-of 07/10/15)

-18.65% - -25.37% - - 541.80 (09/15) Equity Africa ex-SA Ireland Unit Trust 10/08

Coronation All Africa Fund (as-of 07/10/15)

-20.15% - -27.72% - - 70.95 (09/15) Equity African region Ireland Unit Trust 8/08

Duet Africa Opportunities Fund (as-of 07/10/15)

-11.49% - -24.05% - - - Mixed African region Jersey Open-End 4/09

Fleming Africa Fund Ltd (as-of 30/06/15)

-6.20% -0.10% -9.31% - - 25.86 (06/15) Mixed African region Cayman Isl. Open-End 9/10

Franklin Templeton IF - Templeton Africa Fund (as-of 07/10/15)

-18.77% - -26.61% -3.57% - 103.71 (08/15) Equity African region Luxembourg Open-End 5/12

IPRO African Market Leaders Fund (as-of 07/10/15)

-15.84% - -22.45% - - 14.10 (07/15) Equity African region Mauritius Open-End 7/08

Imara African Opportunities Fund (as-of 30/09/15)

-12.05% -0.10% -19.00% +1.70% +2.30% 46.96 (09/15) Equity African region BVI Open-End 6/05

Imara African Resources Fund (as-of 30/09/15)

-42.70% -10.10% -52.20% -36.60% -28.80% 0.51 (09/15) Resources African region BVI Open-End 1/09

Imara East Africa Fund (as-of 30/09/15)

-20.40% +0.50% -22.20% +5.20% +2.70% 1.49 (09/15) Equity East Africa BVI Open-End 1/08

Imara Nigeria Fund (as-of 30/09/15)

-12.10% +10.60% -35.00% -4.80% +1.20% 3.65 (09/15) Equity Nigeria BVI Open-End 3/07

Imara Zimbabwe Fund (as-of 30/09/15)

-7.20% -1.30% -24.50% -3.50% -0.70% 8.82 (09/15) Equity Zimbabwe BVI Open-End 3/07

Invest AD - Emerging Africa Fund (A) (as-of 07/10/15)

-18.25% - -28.44% -0.58% - 36.69 (10/15) Equity African region Luxembourg SICAV 03/12

Investec Africa Fixed Income Opportunities (as-of 07/10/15)

-10.78% - -12.83% - - 31.63 (09/15) Fixed Income African region Guernsey Open-End 8/13

Investec Africa Fund (as-of 07/10/15)

-17.49% - -30.64% - - 6.86 (09/15) Mixed Africa ex-SA Guernsey Open-End 4/12

Investec Africa Opportunities Fund (I) (as-of 07/10/15)

-14.21% - -22.81% -4.03% -3.87% 16.30 (10/15) Equity African region Luxembourg SICAV 2/11

Investec Pan Africa Fund (A) (as-of 07/10/15)

-22.09% - -32.91% -5.28% -4.24% 118.27 (09/15) Equity African region Guernsey Open-End 10/07


OCTOBER 2015


FUND PERFORMANCE (USD RETURNS)

Source: Company Data, Morningstar

YTD 1 Month 1 Year 3 Year 5 Year AUM ($m) Strategy Focus Domicile Type Start

JPMorgan Funds - Africa Equity Fund (A) (as-of 07/10/15)

-15.82% - -20.90% -7.09% -0.92% 273.52 (10/15) Equity African region Luxembourg SICAV 5/08

Julius Baer Multistock - Africa Focus Fund (A) (as-of 07/10/15)

-19.67% -9.34% -31.41% -12.05% -11.26% 17.92 (10/15) Equity African region Luxembourg SICAV 9/09

MCB Africa Bond Fund (A) (as-of 30/09/15)

-8.51% - -11.32% - - 14.62 (09/15) Fixed Income African region Mauritius Open-End 2/14

Magna Umbrella Fund - Africa Fund (as-of 07/10/15)

-9.67% - -18.84% - - 19.33 (10/15) Equity African region Ireland OEIC 12/12

Momentum IF Africa Fixed Income Fund (as-of 07/10/15)

-6.00% - -5.69% - - 9.99 (09/15) Fixed Income African region Luxembourg SICAV 8/13

Momentum IF Africa ex-SA Equity Fund (as-of 07/10/15)

-15.54% - -25.83% +3.23% +6.18% 8.24 (10/15) Equity Africa ex-SA Luxembourg SICAV 9/07

Nile Pan Africa Fund (as-of 07/10/15)

-11.73% - -17.11% - - 26.06 (10/15) Equity African region USA Open-End 11/10

Old Mutual African Frontiers Fund (as-of 07/10/15)

-10.19% - -20.46% - - 91.65 (10/15) Equity African region Ireland Open-End 5/10

Old Mutual MSCI Africa ex-South Africa Index Fund (as-of 07/10/15)

-18.66% - -33.27% - - 84.81 (10/15) Index African region Ireland SICAV 9/11

Old Mutual Pan African Fund (A) (as-of 07/10/15)

-10.33% - - - - 48.18 (08/15) Equity African region Ireland ICVC 11/14

RMA Africa (as-of 07/10/15)

-15.57% - -26.03% - - 17.91 (10/15) Equity African region France FCP 8/13

RenAsset Africa ex S.A. Fund (as-of 07/10/15)

-18.97% - -33.16% - - 30.40 (10/15) Equity Africa ex-SA Dublin UCITS IV 6/14

RenAsset Nigeria Fund (C) (as-of 07/10/15)

-14.22% - - - - 4.18 (10/15) Equity Nigeria Dublin UCITS IV 4/14

Renaissance Sub-Saharan Fund (as-of 07/10/15)

-19.26% - -35.24% - - 15.21 (10/15) Equity Sub-Saharan Luxembourg SICAV 10/10

SGKB LUX Fund - African Dawn Fund I (as-of 07/10/15)

-21.23% - -30.59% -17.96% - 6.37 (10/15) Mixed African region Luxembourg FCP 12/11

Sanlam African Frontier Markets Fund (A) (as-of 07/10/15)

-17.50% +1.20% -27.74% -1.30% -0.70% 74.13 (09/15) Equity African region Ireland Open-End 1/09

Silk Africa Bond Fund (as-of 07/10/15)

-11.93% - -15.50% - - 2.04 (10/15) Fixed Income African region Luxembourg Open-End 11/09

Silk African Lions Fund (as-of 07/10/15)

-18.99% - -26.63% - - 62.88 (10/15) Equity African region Luxembourg SICAV 9/10

Steyn Capital Africa Fund (as-of 07/10/15)

-17.17% - -23.68% - - 133.00 (09/15) Equity African region Malta SICAV 9/11

Sustainable Capital Africa Alpha Fund (as-of 31/08/15)

-28.60% -8.60% -45.20% -5.20% - 66.70 (08/15) Equity Africa ex-SA Mauritius Open-End 1/12

Sustainable Capital Africa Consumer Fund (as-of 31/08/15)

-16.70% -3.20% -20.20% - - 11.50 (08/15) Equity Africa ex-SA Mauritius Open-End 3/13

Sustainable Capital Africa Sustainability Fund (as-of 31/08/15)

-15.50% -5.90% -26.60% -2.50% -2.40% 16.30 (08/15) Equity Africa ex-SA Mauritius Open-End 11/09

Sustainable Capital Nigeria Fund (as-of 31/08/15)

-20.00% -2.30% -42.40% -2.80% - 11.70 (08/15) Equity Nigeria Mauritius Open-End 5/12

Threadneedle Lux - Stanlib Africa Equity (as-of 07/10/15)

-18.96% - -28.98% - - 19.47 (06/15) Equity African region Luxembourg SICAV 8/14

- - - - - - - - - - -


OCTOBER 2015


PROFILE

AMETHIS FINANCE:Eye-catching Impact Investor

Paris-based Amethis Finance stands out from the

African private equity crowd. Its overwhelmingly pri-

vate shareholder base is certainly a rarity in a universe

heavily dependent on development finance institutions

(DFIs), whilst the management team’s long-term dedi-

cation to the African continent has led them to design

their very own investment and impact philosophy. We

met with Managing Partner Luc Rigouzzo in Cape

Town to find out what that might be

ith an academic background in agronomy and finance, Luc Rigouzzo fell into the development finance potion from the word go, executing transactions in the agri sector, first on behalf of France’s AFD and

Proparco in the field in Mexico, Ivory Coast and Cameroon, then from the French DFI’s headquarters in Paris. After a three-year tenure at the IFC, he returned to the AFD group in 2000, eventually heading Proparco as its CEO until late 2010, when the French Foreign Ministry brought him in to steer and coordinate the French overseas development aid policy.

With a 25-year track record in developing world investment, 80% of which focused on Africa, Monsieur Rigouzzo then teamed up with fellow Proparco senior executive Laurent Demey and Geneva-based Compagnie Benjamin de Rothschild to launch Amethis Finance, reaching a final closing for fund ‘numero un’ in June 2014. The team now manages $330m for equity investments and $150m for debt through an OPIC facility (at current exchange rates).

INVESTOR BASE AND TEAMAs hinted above, the fund raising itself is worthy of interest. As anyone who has ever attended an African private equity conference will unequivocally confirm, DFIs have always been, and are to this day, at the core of most funds’ shareholder base. Where, we hear panelists cry, would we be without the DFIs? Every year, the advent of the private investor is heralded, at long last allowing European and American development financiers to take a back seat. But evidence of same has been scant.

Not so in the case in point. 94% of Amethis’ shareholders are private. Even more surprisingly, whilst 40% of these are institutions, ranging from insurance compa-nies to funds of funds, the balance is contributed by families and their investment vehicles. Many of these, Mr R. explains, have identified Africa as the next big thing, and saw in Amethis a worthy partner to guide their first steps onto the continent,

W

By Thomas Venon, Co-Founder, Eighteen East Group


OCTOBER 2015


PROFILE

providing them with the governance and transparent reporting they have grown accustomed to.

Another remarkable feature of the Amethis story is the team itself. It is essentially a mix of European investment professionals with long-term exposure to Africa, and African nationals who, having typically acquired their academic credentials in Europe, built their careers at western finance houses. This, Luc Rigouzzo argues, is both representative of the transition at play in African investment markets, and a strong differentiating factor.

Amethis is indeed in the business of providing growth capital to the companies its team members have encountered at some stage or other in the last 25 years, in countries where team members were born, have lived or have conducted business.

This in turn informs the group’s specific brand of investment phi-losophy. On the equity side, Amethis typically invests as a minority shareholder, acting as a partner to management and catalyzing the investee company’s transition from national to regional scale through access to its network of clients and partners.

IMPACT INVESTINGIn an environment where the increasing availability of financing options mean entrepreneurs conduct due diligence on their private equity suitors, Amethis wants to come across as honest, fair and unapologetic about their strong ESG and impact stance.

This neatly brings us to the question of where the firm stands on impact. As Luc Rigouzzo will tell you, with something like the air of a weary merchant mariner, through his long career, he has been exposed to every impact brand, fashion, measurement scheme ever to come out of the hyperactive minds of development finance professionals. The overarching conclusion he finds himself able to draw is that it generally turns out that the most financially success-ful investments are also the ones delivering the most impact.

This of course seems to make sense, since to be in a position to deliver impact for any prolonged period of time a business first and foremost needs to steer clear of financial ruin. Amethis therefore seeks investments with strong financial return prospects, but will only consider these if they are ‘impact positive’. Impact objec-tives are then built into the investment agreement, complete with

consequences for failure to deliver and adequate support mecha-nisms for success. Rigorous measurement completes the picture. The Rothschild association comes particularly handy here as a high caliber specialist conducts the impact audit.

Last but not least, co-investment is here more than just a fashion-able catch-phrase, as every other deal the fund has made to date has involved co-investors, bringing in an additional external dollar to every dollar invested by Amethis.

The unique shareholder base backing Amethis Finance is in itself of great interest. Whilst African private equity practitioners will see there a hopeful sign of a diminishing reliance on government backed DFIs, impact investing enthusiasts may well see the in-volvement of family investors as a step towards bringing impactful, financially viable investment in Africa one step closer to private individual investors. When the time comes for Amethis Finance to raise fund ‘numero deux’, it will be interesting to see who else the Amethis’ team can bring to the party.

Investment Sector Location Deal type Investment date

Boulos FMCG – Paper Mills Nigeria Convertible loan August 2015

Econet Telecommunications Zimbabwe, Debt Investment May 2015

CIEL Finance Financial services Mauritius and Madagascar – Regional

Equity investment February 2015

Compagnie de Distribution de Côte d’Ivoire

F&B wholesale and retail Ivory Coast Equity investment December 2014

Ramco Plexus Printing & Packaging Kenya Equity investment December 2014

Fidelity Bank Financial Institutions Ghana Equity investment April 2014

Velogic Logistics Mauritius Equity investment December 2013

UT Bank Financial Institutions Ghana Debt investment December 2013

PétroIvoire Oil & Gas Distribution Ivory Coast Equity investment July 2013

Chase Bank Financial institutions Kenya Equity investment March 2013

AMETHIS PORTFOLIO

AMETHIS FACT BOX

• PRIVATE EQUITY INVESTMENTS: Minority stakes. Amethis will have a long-term approach and a coherent exit strategy in years 5-8, with tickets (on its own risks) from €5 to €15m.

• LONG-TERM LENDING:With a priority to mezzanine / tier 2, designed for capital ex-penditure, acquisitions and project finance, with tickets (on its own risks) from €5 to €20m.

• ADVISORY AND ARRANGEMENT CAPACITY: Amethis will offer fundraising (debt and equity) from banks, family offices, development finance institutions, and private equity actors leveraging the team’s network.

Source: Amethis Finance


African project origination, market access and global financeAfrica’s premier investment summit will host some of the biggest business names in Africa, alongside African governments and a private sector seeking expansion capital.

Transforming Africa’s economies for global competitiveness

1-2 DECEMBER 2015 CENTRAL HALL WESTMINSTER LONDON, UK

Hear from African leaders in attendance including:

Access over 200 private and public bankable African projects including:

Ghana Rehabilitations, upgrades and expansion of Ghana’s Railways

Rwanda Central Business District Phase 1 (CBD1)

Uganda Eldoret-Kampala-Kigali Oil Pipeline Project

Malawi Affordable Housing. 5,000 units, serviced land

Nigeria Ncote Integrated Farms Ltd

REgistER to AttEnD tgais.com/register

Sponsored by:Platinum Gold Silver

Bronze Associate

H.E. Yoweri Kaguta MuseveniPresident Republic of Uganda

H.E. Paul KagamePresident Republic of Rwanda

H.E. Augustin Matata Ponyo Prime Minister Democratic Republic of the Congo

H.E. Ellen Johnson SirleafPresident Republic of Liberia

H.E. John Dramani MahamaPresident Republic of Ghana

H.E. Peter MutharikaPresident Republic of Malawi

Ad_AfricanGlobalFunds.indd 1 22/09/2015 18:14

African Asset Management Intelligence and Insight for Investors, Fund Managers, CEOs, Governments,

Administrators, and Service Providers

AFRICAGLOBAL FUNDS

12 Digital Issues Full Access Online

For Only $285

SUBSCRIBE NOW TO SAVE $99

Roman Onosovski | +1 561 866 0737 | [email protected]

Documents

Agf digital magazine october 2015