Safely reaping emerging market opportunities

So says Soula Proxenos, Managing Partner at International Housing Solutions (IHS) and member of the Emerging Markets Private Equity Association (EMPEA) Africa council.

Proxenos says that while the private equity industry globally was not yet well understood, the industry in Africa has emerged as a leading example of how investors can realise above-average returns while at the same time providing much-needed capital funding to developing nations. The importance of private equity is that it capitalises businesses and opportunities with a potentially significant developmental impact, where otherwise it would have been hard to secure capital, while at the same time offering investors good risk-adjusted returns.

“The social and economic value of investing institutional funds in emerging markets is clear. In 2007, IHS became the first institutional managers to recognise the possibilities of private equity investment in residential real estate in sub-Saharan Africa, when it entered the affordable housing sector in South Africa,” she says.

“At the time, the approach may have been considered niche and possibly more risky than visionary, but with other managers following in our wake it has become clear that we at the forefront of a trend. Currently, returns for the first fund launched by IHS are comfortably meeting expectations. In addition, investor appetite for Africa has grown with South Africa often seen as the ideal launch zone for entry into sub-Saharan Africa.  Research reveals that over the past five years, Africa has increasingly been accessed by investors through private equity funds.”

Proxenos recently addressed the third annual Private Equity in Africa Leadership Summit in London, which drew more than 300 delegates from 30 countries, including several high-ranking government representatives from developing nations such as Lagos, Zimbabwe, Ghana, Botswana, Kenya, Nigeria and Brazil.

She is due to address a conference in February in SA, focusing on Private Equity in Southern Africa. Hosted by the South African Venture Capital & Private Equity Association (SAVCA) and EMPEA, the conference will see senior representatives from global fund management and institutional investor communities debate the importance of private equity investment for sustainable economic development in Southern Africa. They will also unveil details on the opportunities the sector provides.

Jennifer Choi, vice-president of Industry and External Affairs at EMPEA, says the over-arching theme at the standing room only Summit in London was that “the time is now for Private Equity investment in Africa”.

Proxenos said the market opportunity in emerging economies, particularly in Africa, were huge and applied across sectors - from retail to property, mobile to medicine.

For instance in the housing arena, IHS’s investors gained exposure to a growing market because of generalised urbanisation which necessitated the creation of housing in cities, as well as a spike in urbanisation as millions who had their movement restricted under apartheid were now able to move freely to where opportunities are to be found.

Additionally, many housing structures in neighbourhoods are substandard and require investment to fund improvements, while the working-age population in SA is expected to grow by more than 12% by 2030. Industries such as mining, infrastructure projects and tourism require worker housing while growing numbers of moderate-income households want to move into higher standard accommodation.

The characteristics of the market detailed above can only be found in emerging economies, Proxenos notes.

“While the aforementioned trends apply to the housing sector, most sectors have comparably favourable circumstances setting it apart from the same sectors in developed countries, which provide compelling reasons for institutional investors to favour emerging markets over developed ones,” Proxenos says.

She adds that for such investors, equity funding was the ideal investment vehicle.

“Private equity investment provides flexibility, shared exposure, some liquidity and an opportunity to select partners with a proven local track record in the chosen sector. Few individuals or investors have the necessary knowledge and insight to be able to safely and confidently make direct investments into a foreign market. This is especially so in the case of emerging markets such as in Africa,” she says.

“Private equity investment also enables the achievement of greater scales of economy, and therefore increased growth and subsequent return on investment.”

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