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Among other salient points from the FT’s piece on Monday regarding the growth of private equity in frontier markets, Zain Latif, founder of TLG Capital, notes the need to “invest in a pool of countries, rather than one or two,” given the short-term volatility that, “however professional the due diligence” can arise from “political machinations” that “can still undermine investment plans.”  While the S&P Africa 40 index, for instance, is up 9.4% YTD, and the MSCI Frontier Index (covering 26 countries) has risen 8.01, individual markets themselves are still highly differentiable given not only their likelihood of social and political unrest, but also the underlying macro issues and central bank response strategies. 

In particular, Mr. Latif highlighted the role of healthcare in providing anti-Aids and anti-malaria drugs as an area where his firm can add value.  “Nigeria spends billions on foreign medical services,” he pointed out,” [though while] there is a desire to spend money [there are] no facilities.”  Stressing the importance of good relationships, as well as the difficulties in obtaining “reliable information,” notwithstanding the presence of a local workforce and “on the ground” insight deemed practically essential to most alpha-seeking frontier managers, Latif underscored that “there are so many opportunities to put money that you aren’t fighting over deals.” 

With the flow of PE investment into emerging markets up to $13b through the first half of 2010 (up from $8b y-o-y), it will be interesting to monitor whether the aforementioned impediments discourage a further acceleration of capital flow or if, rather, the allure of relatively uncorrelated, high returns financed by cheap money abroad continue to manifest itself in frontier firms desperately in need of funding and management expertise.  If so, private equity could turn out to be a truly effective source of defacto private aid to continents and countries, against the backdrop of debt ridden developed governments who used to be a more reliable source of such investment and largesse.


Per, the Foursan Group, an Amman, Jordan-based private equity firm that already manages the Jordan Fund, announced the launch of its second fund, Foursan Capital Partners I, a multi-country, multi-sector private equity fund that will target investments in “accelerated growth companies in Jordan and surrounding countries in the Levant and North African regions” and is targeting a final closing of $200 million in 2010. Specifically, “the fund will invest in private companies in a range of attractive sectors including financial services, food and beverage, education, aviation, pharmaceuticals and healthcare.”

This on the heels of a report earlier in December in which Imad Ghandour, Executive Director of Gulf Capital, an Abu Dhabi-based PE group, mentioned that there was between $11-13 billion of capital raised by Middle East private equity firms still “waiting to be deployed.”

Phnom Penh-based private equity firm Leopard Capital completed its second and third deals last month, including a $1 million investment in a consortium group whose implementation of a transmission and distribution system 120km in length, which includes medium and low voltage networks, will provide grid power to 7,700 residential customers and 375 commercial and industrial customers (per reports, the electrification rate in Cambodia is currently one of the lowest in Asia and such there is pressing demand for more power generation and transmission). Herein linked is an interesting interview with Douglas Clayton (pictured left), Leopard’s founder who made headlines in March 2008 for launching the first-ever Cambodia-dedicated investment fund with $27 million in capital that he raised through vigorous pitching of the country’s fundamentals, a coup in and of itself given the times and particularly for a fund dedicated strictly to what Clayton admits is a “failed state that’s back on its feet.” Yet the long-term growth potential, Clayton explains, should suit forward-looking investors:

“[Cambodia] is a country that has many business opportunities. In most countries, there will be rental car agencies, there is a bus pickup to town, but there are not in Cambodia. Many other Asian cities have this, but Phnom Penh doesn’t. Secondly, we have a very young population here. The average age in Cambodia is 21, unlike many western countries, where the average age is 40, the time that you get ready for retirement. Cambodians are just ready to go to work.”

Leopard and competing funds will look to move money into banks, office buildings, luxury hotels, ports and other projects, according to analysts.

In a New York Times feature on investment in the country from last year, another fund manager, Marvin Yeo of the Cambodia Investment and Development Fund, echoes Clayton’s assessment, citing the country’s “young and inexpensive work force, rising productivity, a pro-business government, stable politics and strong GDP growth, which peaked at 13.5% in 2005 but was expected to mellow to 7-8% in coming years.” Clayton theorizes as to the presence of Cambodian stock and bond exchanges by year’s end, citing the growing array of foreign-sponsored companies, including banks and cellphone operators, as well as agribusiness. And FDI from the likes of China, South Korea and Malaysia is now in the billions. Such investment relies on the country’s oil and mineral resources and is helping to reduce the country’s dependence on clothing exports and tourism.

That said, serious questions remain. Crony capitalism, a questionable legal system and accounting standards, as well as rampant corruption (Cambodia ranks near the bottom of Transparency International’s corruption perceptions index) are all cause for concern. Yet the seeds for continued market reform are certainly in place. The ruling Cambodian People’s Party and the main opposition Sam Rainsy Party are “committed to the same pro-business, pro-growth policy platform,” according to Cambodia Investment.

Finally, some pretty big names among international finance are on board with the message as well. According to Jim Rogers (who along with Marc Faber and several others, sits on Leopard’s board), for instance, “Cambodia does have a lot of natural resources, it does have an ambitious population, and it does have some assets. Most countries that come out of something like they have are inclined to be pretty safe for a while because they’re trying to get money in.”

As reported everywhere, Abraaj Capital, an investment firm specializing in private equity investments in the Middle East, North Africa and South Asia (MENASA) region which was the first pure PE firm

to be licensed by the Dubai Financial Services Authority (DFSA) to operate out of Dubai International Financial Centre (DIFC) and is considered extremely well capitalized (issued share capital of $1b), will take a minority stake in Nasdaq Dubai-listed and government-run port operator DP World. But is the deal more a sign of, as FT writes, “revival in the moribund regional private equity market”, or a reflection of the government’s increasingly desperate need to reduce its debt?

As for Abraaj, it plans $2b worth of deals this year as it looks to benefit from lower valuations across the Middle East, North Africa and Asia.

“I think DP World needs liquidity,” said Middle East Financial Brokerage Company general manager Samer Al Jaouni. “We were expecting that we start seeing some deals, some big acquisitions in the region. It’s time for bargain hunters to get into the market, and the big companies need cash,” he said.

Some interesting quotes in Monday’s Financial Times (“The lure of Africa’s long term story”) from Dr. Ayo Salami (right), head of the Duet Victoire Africa Index fund–which tracks a market cap-weighted index measuring the composite performance of large companies listed on stock exchanges in sub-Saharan Africa excluding South Africa–as well as of the newly launched Africa Opportunities fund (formerly New Star’s Heart of Africa fund), a long-only vehicle that also focuses on the sub-Saharan region.

While Dr. Salami’s index was down 40% last year, for instance, few investors have jumped ship.  Moreover, he is not having any trouble securing new capital, at least from the Scandinavian and Benelux countries, [where] “the risk appetite is much higher than among Anglo-Saxon investors,” and from high net-worth individuals (as opposed to institutions) who may especially value extra alpha.  To this extent, “there are some investors who get the long-term nature of [Africa’s] story.”  And, he notes, companies in the index grew their earnings per share by 32%.

Dr. Salami predicts continuing growth in consumer demand as the underpinning for the continent’s imminent rise.  “Africa has not seen demand destruction like in the developed world.  For this reason, I like companies like brewers, cement [and] food companies.”  Finally, he mentions that Duet may seek to add a private equity fund in the near future.

China, India and Brazil are emerging markets investment priorities for private equity firms now poised to capitalize on lower valuations, according to a survey conducted by the Emerging Markets Private Equity Association (EMPEA) and Coller Capital.

“Emerging market private equity funds may benefit from very ripe conditions going forward: asset valuations are finally becoming more reasonable, and there is also a strong appetite for private equity capital because companies have fewer financing options,” said Sarah Alexander, president of EMPEA.

Half of LPs surveyed already in emerging markets will commit additional funds to their investments—and, possibly, others—over the next 24 months.  But certain emerging markets were not dubbed as hot as others; Russia, Central and Eastern Europe and Africa are believed to have an increase in risk recently, the study noted.

That said, Emerging Capital Partners just paid $47.7 million for a minority stake in African insurance group, La Nouvelle Societe Interafricaine d’Assurance Participations SA, or NSIA. The capital will provide NSIA with resources for organic growth and acquisitions as well as the equity strengthening of the company’s banking affiliate, Banque Internationale d’Afrique Occidentale, or BIAO, which was bought in 2006. The company has operations in Benin, Cameroon, Congo, Ivory Coast, Gabon, Guinea Bissau, Senegal and Togo.


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