Palico Blog Member Viewpoint by David Teten (Teten.com) - Partner, ff Venture Capital; Founder and Chairman, Harvard Business School Alumni Angels of Greater New York
It is hard to generalize about a continent that has 54 countries, 1 billion people, a plethora of languages, and many cultures. Still, a few salient African facts stand out.
With average annual growth of 5 percent over the past decade, Africa has been relatively untouched by the global financial crisis, plus its prospects look bright. Its population is set to double by 2025, while the economic infrastructure needed to serve its rapidly growing middle class is embryonic. It is the fastest growing region in world, with the International Monetary Fund estimating that 7 of the 10 fastest developing economies between 2011 and 2015 will be in Africa.
All of this means that there is unprecedented interest in investing in African private equity – particularly in the sub-Saharan region, which arguably holds a relatively greater share of the region’s unexploited potential. Public and private pension funds, endowments, foundations, insurance companies, family offices and sovereign wealth funds are eagerly reviewing investment opportunities in the region.
Given the review processes Palico has seen, and the number of fundraising campaigns targeting Sub-Saharan Africa, we think new private equity commitments for the region could hit $4 billion in 2013. That’s more than three-fold the $1.2 billion raised in 2012 and easily surpasses the 2008 bubble-year record of $2.5 billion.
Specialization is changing the profile of private equity. In the past two weeks, one major general partner set up a joint venture with a European financial services specialist, another purchased a commodity specialist, while yet another let it be known that it would be raising a multi-billion dollar energy fund, after shelving a fundraising project for a generalist buyout fund last spring. It's no accident that the latter's greatest recent successes have been energy investments.
Palico data shows that some $15 billion was raised for industry-focused strategies in the first six months of 2012 - a record first half for such funds. For the first nine months of the year, five out the ten largest closings were achieved by funds with specialist strategies.
Those figures make it easier to understand why 33 percent of GPs in a recent poll said they plan to adopt more narrowly focused sector strategies going forward.