Fundraising fallout

African fundraising soared to unprecedented heights in the first six months of 2008, but the second half of the year may not be as rosy, writes Matt Levin.

For years, Africa-focused private equity firms have clamoured to get African countries included in the discussion of hot emerging markets for private equity.
For the first six months of 2008, it seemed the region was finally gaining traction among LPs. Africa funds raised roughly $1.26 billion in the first part of the year, more than double the total for the first half of 2007, according to the Emerging Markets Private Equity Association.
Even more eye-catching, the EMPEA found that the African fundraising pace nearly caught that of Latin America, which enjoys a considerably longer history of private equity activity — as well as more publicity. Latin American funds, EMPEA found, raised only $300 million more than did African funds during the first half of 2008.
Recent first closes, elevated targets and firms with longer track records moving away from reliance on development finance institutions (DFIs) have further corroborated the notion that the region is gaining more legitimacy.
Emerging Capital Partners, raising its largest ever $1 billion pan-Africa fund, was said to be nearing a first close this autumn, for example. InReturn increased its East African fund target to €15 million from €10 million. And just last week, Aureos Capital reached a $254 million first close on its $400 million pan-Africa fund.
In past months, if you'd asked a general partner or placement agent about fundraising, you would have been greeted with a decidely buoyant answer.
That exuberance, however, risks subsiding as the global fundraising climate becomes more difficult. As public equities volatility sets in motion a denominator effect roiling limited partner portfolios worldwide — and shell-shocking LPs along the way — all segments of the private equity fundraising market risk significant slowing.
This is particularly troubling for many Africa-focused GPs because private equity activity on the continent is relatively young, especially outside of South Africa, and as such there exists little data on the counter-cyclical performance of African private equity funds.
In other words, unlike many of their private equity peers in more mature markets, most Africa-focused funds can not try to soothe nervous LPs by pointing to a slew of impressive returns from vintages that date to recessionary periods.
Those firms that rely heavily on development finance institution investments could also be affected by soaring national deficits in the developed world, as governments may be inclined to trim expenditures for foreign aid, including DFIs.
But the news is not all bad. Of all the emerging markets, Africa may have the strongest argument that it is by far the most decoupled from the credit turmoil rocking the globe, and the empirical evidence is still yet to be published.