International LPs will have less capital to deploy to African PE, says TPG’s Yemi Lalude

Posted on: 28 May, 2020 at 7:21 PM

By Jaco Maritz

A significant portion of the capital invested in African private equity funds come from outside the continent. Earlier this year, CDC Group, the UK Government’s development finance institution (DFI), said it alone is responsible for over 10% of all capital invested through Africa-focused private equity funds.

However, due to the Covid-19 economic fallout, some foreign backers might have less capital to commit to African private equity, according to Yemi Lalude, who leads the African investment activities for TPG’s The Rise Fund.

“The money that we are investing, unfortunately, for the most part, is not from Africa. The money is from offshore. The offshore funders who invest in our various funds will have less capital to deploy into our markets, especially given [Africa’s] perceived or actual risk profile relative to some other markets,” Lalude explained during a recent webinar hosted by Invest Africa.

“The traditional sources of capital are just not going to be in a position to provide the capital that we have all enjoyed for many years.”

Most of the European and American DFIs – traditionally prominent backers of African private equity funds – have announced Covid-related support measures. However, it remains unclear whether they have the appetite for fresh investments in African PE funds.

At the beginning of April, the DFIs of 16 OECD countries – which includes the CDC, Germany’s KfW-DEG, France’s Proparco and Finland’s Finnfund, to name a few – stated they are committed to meet the unprecedented global demands resulting from the outbreak of Covid-19. “The group will work collaboratively to bring liquidity to the market, support companies impacted by the virus, and promote new investment in global health, safety, and economic sustainability,” read the statement.

Meanwhile, the US International Development Finance Corporation (DFC) has approved $4 billion in financing for existing DFC projects that have been particularly impacted by the coronavirus. This is in addition to $2 billion the DFC has committed to private sector health-related investments in developing countries.

According to Lalude, foreign institutions are likely to focus on their own economies, rather than supporting Africa. “At a macro level, I am actually quite concerned because I think people are going to be inward looking and focused on what’s happening in Germany and the UK and the US versus what they can do in Africa.”

To make up for less funding from abroad, the private equity industry needs to unlock local sources of capital such as domestic pension funds. Lalude said many African pension funds are not beating inflation by merely investing in government bonds. “We need to really get those pools of capital into the economy and actually create value. Just sitting around and buying government bonds is not doing anything for the pensioners in the first place because the yields on Nigerian bonds right now is less than inflation. That’s not how you run a pension business.”

He suggested a gradual global economic recovery more akin to the Nike ‘swoosh’ symbol than a V shape. “This is a situation where we really need to look at homegrown solutions,” Lalude said.

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