RisCura’s new Bright Africa research shows the key shifts and trends that continue to shape the strong private equity growth in the continent, with Mauritius expertly facilitating investment flows. Sean Winter, RisCura’s Executive for Alternative Investment Services in Africa, highlights that the upward trend in deal-making is expected to continue, and a significant number of new African deals should be set up and structured in Mauritius.

RisCura, a global investment firm, on 15 March 2022, launched the results of its latest “Bright Africa” research which suggests, with high economic growth and significant tailwinds for long-term investment, balanced against elevated medium-term risk, that a lasting, long-term upward growth trend in private equity (PE) investment on the continent over the last decade is likely to continue, as fund management hub Mauritius continues to play a key role in facilitating the continent’s investment flows. 

Sean Winter, RisCura’s Executive for Alternative Investment Services in Africa, welcomes the report, highlighting, “Our report affirms that Africa remains an attractive investment destination, but requires enhanced economic reforms, good governance, and a stable political landscape to continue attracting PE fundraising and entrepreneurs. Addressing these factors will play a pivotal role in the development of the continent, including attracting vital private investment to accelerate progress.” 

Fund managers and fund administrators in Mauritius stand to gain from the rise in deal-making activity in the continent, identified in the research. 

Being based in the valuation specialist’s Mauritius office, he adds that the steady rise in PE transaction activity in Africa carries particularly positive implications for Management Companies in the island economy, “Based on our observations on the ground, Management Companies should find succour in PE deal activity increasing by 19% from June 2020 to June 2021 – this upward trend should continue and a significant number of new African deals should be set up and structured in Mauritius.”

Deal-making activity on the rise, but at lower values   

For 2021, notwithstanding the dramatic drop in funding, and the change of risk and growth outlook, research data from the report shows that deal activity in Africa reached new highs, albeit at lower transaction values that shrunk from USD 40.44mn over 2016-19 to USD 11.1mn between 2020 and 2021.

Total PE transaction activity increased steadily by 20% from June 2018 to June 2019, tapering to 9% in the following year. 

It then rebounded strongly between June 2020 and 2021, resulting in a 19% increase. 

“Despite erratic fundraising and volatile risk and growth conditions, exemplified by current global geo-political events, long-term market trends in African private equity have remained constant,” says Sean.  

Lumpy nature of fundraising contributes to market mismatches 

Before the remarkable contraction in 2020 and 2021, PE fundraising activity across Africa grew consistently between 2016 and 2019, with total 2019 PE fundraising value reaching USD3.88 bn, the second-highest year of fundraising since 2010. 

These fundraising highs were the result of a handful of large funds achieving their final closes in those years and it is this lumpy nature of fundraising in the market that further contributes to the dramatic contraction in fundraising levels. 

“However, the sharp decrease experienced in fundraising is expected to gradually recover in the short- to -medium-term, along with the post-Covid-19 economic recovery, and this growth in the industry will decrease the impact of the lumpy nature of fundraising,” says Sean.

Impact investing gives out green shoots of hope

Of the African PE funds raised in 2020, USD498m or 38% was allocated to impact fund managers, a significant increase from prior years and a pattern most likely to continue, given the growing conviction on the part of investors that smart investing is responsible investing.

Mauritius has already firmly established itself as a gateway for investment into Africa through its robust banking, taxation, fiduciary, and fund management infrastructure and mature regulatory investment fund framework. 

Meanwhile, the government seems to be focusing on strengthening the regulatory environment around impact investing which will hopefully attract PE fundraising and entrepreneurs in this arena.

“The Financial Services Commission (FSC) of Mauritius laid out its first guidelines on 23 December 2021 for the issue of green bonds. Cim Finance issued the first Mauritius green bond in early 2022, following in the footsteps of South Africa, Kenya, Morocco and Egypt,” highlights Sean.

Sector investment shifts to tech-capabilities

The Covid-19 pandemic has of course impacted PE. In the post-pandemic era, key sectors for investment include healthcare, pharmaceuticals, IT and education, and businesses that are tech-enabled.  

“The global pandemic has accelerated e-commerce in many parts of the world, which could present substantial opportunities. Coming to Mauritius itself, the report makes clear that, according to the United Nations Conference on Trade and Development’s Business-to-Consumer’s e-commerce index of 2020, it ranks within the top 100 of the index globally,” notes Sean.

Indeed, investment activity in the continent’s IT sector (excluding internet and direct marketing retails companies) experienced significant growth of 49% from June 2020 to June 2021.

“Mauritius is well-positioned to leverage off this development, given the solid platform developed by the EDB and the Mauritius Africa FinTech Hub as a fast-growing ecosystem where entrepreneurs, corporations, governments, tech experts, investors, financial service providers, universities and research institutions can collaborate to build cutting-edge solutions for the emerging African market,” says Sean.

“Through our interactions with various Management Companies in Mauritius, RisCura has observed that investors are increasingly scrutinising the valuation of private fund portfolio companies, placing more responsibility on Management Companies to ensure the accurate, fair value of investments they administer. It is here that our role in performing independent valuations for these investments significantly mitigates risk for all parties involved in these transactions, including the investors, the private funds (or companies), and the trustees,” he concludes.