Emerging Managers, Institutional Investors, Pension Funds, Private Equity

U.S. Investor Delegation Kicks Tires of Africa Infrastructure Opportunities  

Though most of the U.S. institutional investors that were part of a delegation that travelled to Senegal and South Africa in early March invest in emerging or frontier markets (EFM), less than half of the funds invest in Africa, and fewer than one fifth invest in infrastructure there, with their EFM holdings primarily in private equity, according to a survey of the delegation. One third of the investors said they expect to make their initial investments in the region within the next three years, however.

The investors were part of the second delegation of U.S. investors organized by the NASP-USAID Investment Partnership for Mobilizing Institutional Investors to Develop Africa’s Infrastructure or MiDA. MIDA’s mandate is to expand opportunities for U.S. institutional investors seeking infrastructure investments in Sub-Saharan Africa (SSA) for commercial profit, while making a meaningful impact in the region.

The delegation comprised 15 executive directors, chief investment officers, trustees/board members, and chairs of investment committees from U.S. pension systems, insurance funds and foundations and endowments, who travelled to Senegal and South Africa in early March. It also included 15 participants from asset management and pension consulting firms that work with pension systems to explore opportunities with African asset allocators.

The City and County  of  San  Francisco  Employees  Retirement  System  and  the  Seattle, WA-based Casey  Family Foundation  are two institutions that were part of the investors’ delegation that have  already made investments in  infrastructure in Sub Saharan Africa, after having attended MIDA trips. The first delegation went to South Africa in 2017. IA reached out to both investors, but neither responded by press time.

Christian Dunbar, deputy city treasurer of the City of Philadelphia Treasury Office attends MIDA investor delegations to Sub Saharan Africa.

Investment opportunities abound in Africa, particularly in power and energy and agribusiness, according to Christian Dunbar, deputy city treasurer of the City of Philadelphia Treasury Office, who sits on MIDA’s board and participated in the trip. There are many opportunities to invest in the region’s infrastructure projects, such as toll roads, he specified. “Infrastructure projects have lower default rates in Sub-Saharan Africa than here in the U.S. and in most other parts of the world,” according to a Moody’s infrastructure study cited by Dunbar. “The only place where the risk is lower is the Middle East,” he claimed, attributing this partly to the guarantees on these investments offered by multilateral organizations such as the Overseas Private Investment Corporation (OPIC).

Investors interested in the region can gain access through private equity funds, debt funds, investment firms and in partnership with local pension funds and asset managers, according to Dunbar, as well as through public private partnership with entities such as the World Bank, with which MiDA is now in talks to create an investment vehicle that assists with affordable housing projects in SSA.

Rounding out the trip in March, MIDA surveyed U.S. participants to understand at what stage they stand in making investments in SSA in general and in infrastructure in the region in particular.  Eleven of the fifteen respondents to the survey were pension funds or foundations.

More than one-third of the funds surveyed said they currently have no plans to invest in SSA, while another third expect to make their initial investments in the region within the next three years.  The latter focused primarily in private equity and anticipate their investments will be less than $100 million annually. Most respondents expect to invest indirectly via investment management firms specializing in SSA.

Two-thirds of  the  funds interviewed for the survey invest  in  infrastructure  assets  as  an  asset  class,  with  half  of  them having  an  internal  team  that  focuses  on  the asset class. Two thirds of the funds are not yet investing in infrastructure in EFM, however. Of  those that are,  less  than  one fifth  are  investing  in  infrastructure  in  SSA.

The primary reasons participants gave for not investing in the region were their lack of experience in the region, reputational risk (such as corruption and scandals), exposure to macro-economic and political risk, and barriers to exit or liquidity.

The only place where the risk is lower is the Middle East.

MIDA’s tours to South Africa were the largest ever assembled delegation of U.S. asset owners and fund managers to visit Sub-Saharan Africa seeking direct exposure to local markets and opportunities in private equity and infrastructure, according to the organization. During the trip, U.S. asset managers and financial services providers met with dozens of African asset owners who invest billions of dollars in offshore assets in the U.S.

Over the last 12 months, MiDA members have closed on new deals totaling close to $500 million flowing both directions. Forty five U.S. and African asset allocators took part in the mission, representing close to $1 trillion dollars in pension, insurance, endowment and foundation assets.

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