Investing in an African future

Aureos Capital has launched a new private equity fund for Africa, the Aureos Africa Fund (AAF) after raising US$322.8mn to support small and medium sized enterprises and growth across the continent.

The AAF reached its first close in September 2008 on US$253.5mn and it has already made nine investments totaling US$106.2mn in sectors including financial services, building products, real estate development and agri-business in 18 countries across the continent. The AAF is targeting a US$400mn final close by mid-2010.
Aureos specialises in investing in small to mid-sized capitalised businesses in emerging markets. It was founded in 2001, just in time to catch a wave of global interest in private equity as an asset class. But Aureos Capital was specifically created for investments in emerging markets through regional private equity funds. Since its founding it has created 15 such funds, raising more than US$1bn and investing in 50 emerging markets. It has plans to raise some US$2.5bn by 2012.
Fundraising has been tough for emerging market private equity investors this year. They raised only US$16bn in the first six months of the year, less than half the amount raised in the same period in 2008, according to the Emerging Market Private Equity Association.
Aureos Capital typically looks to invest US$2mn to US$10mn per company, often for a minority stake for management buyouts, expansion, regionalisation and cross-border acquisitions. Speaking at the launch event, Sev Vettivetpillai, the chief executive of Aureos Advisers Ltd said, “In a segment of the market that was considered difficult to make money, we are proving you can.” He confirmed that the AAF raised a quarter of its capital from financial institutions including leading European pension funds. It is expected to close fundraising at the end of the year. He also confirmed that the fund would charge a 2.25 per cent management fee, slightly higher than the industry average to cover extensive network of representative offices in nine African countries and a staff of 48 professionals that include experts in a variety of backgrounds – as well as private equity these include corporate finance, business, consulting, engineering and economic analysis as well, as well as around 20 support staff.

The next generation of business
The chief executive firmly believes that private equity is not just about providing risk capital – it is also about building the next generation of successful, world-class, medium-sized businesses in emerging markets. “We strongly believe in building companies through local presence and effective partnership with our investees. Aureos local presence enables it to play a unique, active role in the development of its investee companies so that they can grow and reach their full potential. We want to see them become the next regional powerhouses.”Vettivetpillai went on to say at the London launch, “It’s 18 months since we started the fund and it’s not easy to raise over US$300mn for Africa as most investors were pulling out of financial markets. It posed a challenge to Aureos. But Africa is the next frontier market that is going to benefit from emerging market flows.”
The AAF, which targets investments in sectors and countries where Aureos sees real potential for above average growth, has benefited from feasibility and due diligence studies supported by the Commonwealth Secretariat. In supporting the AAF, the Secretariat recognises that continued investment in the continent is essential – especially in the current global economic climate – if its development gains over the last few years are to be sustained.
The Commonwealth Secretariat’s relationship with Aureos is part of the Secretariat’s Commonwealth Private Investment Initiative, which has helped to raise some US$800mn for investment in Africa, Asia, the Caribbean and the Pacific – although it does not seek to play any role in the commercial decisions of the funds.
“This Fund has the potential to make a real contribution to Commonwealth countries in Africa, by helping ordinary businesses to reach their potential and boost much needed growth and jobs across the continent,” the Commonwealth Deputy Secretary-General, Ransford Smith, commented at the AAF’s launch. “Ensuring that the private sector and SMEs in particular continue to have access to long term capital during the current global downturn, is key to ensuring a rapid and sustained recovery.”
Rod Evison, the MD Africa for CDC Group (formerly the Commonwealth Development Corporation) echoed these sentiments.
“Speaking on behalf of CDC, as an investor, and I am sure that the other investors will agree, that Aureos Africa Fund provides a wonderful platform to invest in SMEs across Africa.”

Planning to invest
Last summer, Aureos Capital was also involved with another groundbreaking fund. It co-launched a new private equity fund to strengthen health care in Africa, working with the International Finance Corporation (the private sector investment arm of the World Bank), as well as the African Development Bank, the Bill & Melinda Gates Foundation, and the German development finance institution Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG). Together they created The Health in Africa Fund, managed by Aureos Capital, to invest in small- and medium-sized companies in sub-Saharan Africa, such as health clinics and diagnostic centers, with the goal of helping low-income Africans gain access to affordable, high-quality health services.
The fund will not be solely measured by fiscal performance but also by its ability to cultivate businesses serving the poor. The fund will target total commitments of between US$100mn and US$120m over two closings. The June 2009 first closing of US$57mn included investments from the IFC ($20mn), the African Development Bank ($20mn), the Gates Foundation ($7mn), and DEG ($10mn). The final closing is expected by mid-2010.
The fund plans to make about 30 investments, ranging from US$250,000 to US$5mn, as long-term equity and quasi-equity investments in socially responsible and financially sustainable private health companies, with the aim of scaling up successful businesses, taking proven business models into new regions, and identifying and investing in areas where there are critical gaps.
Although viable investment opportunities from all parts of Africa will be considered, priority countries include Côte d’Ivoire, Ghana, Kenya, Nigeria, Senegal, Tanzania, and Uganda. Angola, Burundi, DR Congo, Ethiopia, Mozambique, Rwanda, South Africa, and Zambia are expected to follow.
“Aureos is delighted to manage a private equity fund focused on bringing capital and business services to SMEs in Africa’s health sector,” Vettivetpillai says. The Health in Africa Fund is part of IFC’s Health in Africa Initiative, under which IFC intends to mobilise up to US$1bn in investment and advisory services over the next four years.

Stephen Williams

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
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