African fund managers capture opportunities despite currency, geopolitical risk, others
Despite the hurdles faced by fund managers as a result of challenging macroeconomic conditions, private equity firms continue to identify ways to transform their portfolio companies, and deliver long-term value, taking advantage of the opportunities presented by a growing consumer market amongst other trends.
While the long-term march towards economic development and political stability in the continent is likely to experience occasional setbacks, Africa’s wealth is expected to rise over the next few decades with increasingly urbanised populations, and larger middle-classes with better access to technology and information.
Better educated and wealthier populations will increase demands for accountable government, a new report by the African Private Equity and Venture Capital Association (AVCA) has revealed.
The report titled, “Volatility and Uncertainty: How private equity in Africa navigates through turbulent times,” explores how the African private equity (PE) industry remained resilient amidst currency volatility and unpredictable political environments.
According to the report, investors typically cite concerns over political unrest and macroeconomic instability, such as foreign exchange volatility, as major factors deterring their investment in emerging markets generally, and Africa specifically.
The report examines the strategies adopted by fund managers (GPs) active on the continent to address the risks, and take advantage of the opportunities involved despite the hurdles presented by challenging macroeconomic conditions.
It stated that 63 per cent of GPs viewed currency and commodity price volatility as having been the most important macro factor in Africa over the past three years, while 45 per cent considered geopolitical risk to be the biggest macro risk over the next three years.
As a result, two-third of GPs will factor in political risk management when constructing their portfolios, combining diversification and the avoidance of risky locations to mitigate potential challenges. This is in the context of relatively low GP interest in purchasing political risk insurance.
The research also highlights that currency volatility can be addressed by investing in market-leaders in resilient sectors, such as Consumer Staples and Healthcare, and adopting expansionary strategies.
These tactics contributed to the industry’s overall health and growing reputation as robust even when faced with sustained headwinds.