As Nigeria’s private equity industry has grown, both fueled by and fueling the country’s economic growth, the overall activity and impact of small, indigenous firms has been relativity limited, particularly in comparison to its wealthier foreign counterparts, Ms. Oyelade says.
She attributes the lack of accelerated growth in the industry, in part, to the size of investments that Nigerian pension funds can make, while foreign managers with access to foreign pension funds—as well as foreign development finance institutions— have been able to land larger, more impactful deals. “If you look at offshore managers, they are most often funded by pension funds—as well as family offices and other institutional investors, but mainly pension funds. They contribute more than a third of the capital invested by the major PE players here. But in Nigeria this was not so.
Up until 2013, the pension commission (PENCOM), which has over 3.2 trillion naira in pension assets, (about US$16 billion), was only allowed to invest about 5% of its assets in private equity; the capital and money markets were the main beneficiaries; even the 5% isn’t fully invested, because there were stringent criteria for investments and this has impeded the growth and impact of funds. However, a new Pension Reform Act signed in 2014, favors up to 50% of PENCOM’s asset classes in variable income instruments including private equity (PE). This act should change the PE landscape in Nigeria such that more developmental impact is seen.”
She explains that for its first fund, InVcap is looking especially for pension funds (local and foreign) and family offices to make investments of between US$1 million and US$10 million. “Other institutions are welcome, but the time needed for due diligence will be a major consideration for us, and that’s a big reason why we’re focusing on family offices and pension funds.”
The fund’s appeal to foreign investors should lie in its on-the-ground credentials and its close access to high-growth sectors within booming economies, she says. “With our local presence, we intend to latch onto the good wind that has been brought about in Africa. This is a fund founded by Africans and based in Africa, and we know that we can manage the assets given our track record in the real estate industry and diverse sectors over the years of cumulative experience.”
In Line with the Times
These qualities are indeed appealing to global investors, who are turning to frontier markets for high returns and diversification. Increasingly frontier markets constitute an essential component of the portfolios of wealthy family offices and large institutional investors. Indeed, as an essay in the Economist remarked earlier this year, frontier markets have gone from being a fringe bet for risky mavericks to constituting an asset class in their own right. And several of the most attractive frontier markets are in Africa, and West Africa in particular. As Ms. Oyelade notes, by some accounts 23 of the 25 fastest growing economies in the world are in frontier markets, and the majority of these are in Africa.