Investor demand leads to additional Africa funds from Renaissance AM
Renaissance Asset Managers, which soft closed its Sub-Saharan fund in February, is to launch Nigeria and East Africa funds later this year in response to ongoing investor demand for access to frontier markets.
Adrian Harris, managing director and head of Distributions & Investor Relations, confirmed the additions to the range during a briefing by Sven Richter, manging director and head of Frontier Markets (pictured).
The Nigeria fund will target fundraising of some $50m, while the East Africa fund, which is focused on opportunities linked to Kenya, will target fundraising of $25m. The targets are set in mind of Ucits requirements for daily liquidity.
Liquidity is important for managing investments in Africa, Richter noted. While the long term development story remains benign for foreign investors, there are short-term factors affecting market sentiment – such as elections this year in Kenya and Zimbabwe. Investors also have to deal with factors such as large swings in pricing in markets such as Nigeria, according to whether investors attach a discount or premium to companies doing business there.
Valuation is another key element in the Renaissance Asset Managers (RAM) approach, along with risk and quality factors, Richter said.
Demand among European investors for frontier markets funds remains good, despite the sell-off seen in parts of this year to date, Richter adds. This helps explain why demand is there for country specific funds to be added to products that invest across entire continents or regions. Some are still effectively off-limits to Ucits products because they simply lack the breadth and depth required, as in the case of Zimbabwe and its relatively small stock market.
RAM has considered non-Ucits closed and open ended products to get around the liquidity constraints that determine investment choices. However, this approach also raises other challenges, such as the size of investments that investors interested in this type of product would require – such as the minimum fund size that may be required to meet needs of family offices.
Private equity is another route to investing in Africa, but Richter says the market is still relatively immature.
However, long term there is another driver of Africa funds that will come to the fore; growing pools of sovereign wealth funds and pension funds. South Africa’s Public Investment Corporation has an estimated $6bn out of $100bn in assets invested in sub-Saharan Africa, Richter said.
Pension schemes are growing in many African countries. Additionally, rules regulating the type of asset that government funds can invest in are being adjusted, meaning they can start to look beyond fixed income, or domestic assets only.
Africa has been through a series of political risk shocks in recent months, including events in Egypt and elections in Kenya and Zimbabwe.
However, Sven Richter argues that these events are happening in the context of a push for stability. And within this, what is positive is evidence that disputes are increasingly likely to be put to courts first rather than be settled through battles on the streets.
By investing in countries where this shift is occurring, RAM can participate in an engagement process, but it should also be remembered that RAM’s key responsibilities towards its investors are capital preservation and return – if this contributes to development that is an additional positive aspect, Richter suggests.
Corporate governance is improving – also of benefit to investors – but Africa still remains a place where successfully gauging the honesty of company management is vital to ensuring investors’ capital is treated correctly.
Company managers tend to be far more honest when things are going well, but do not want to open up about problems, Richter said. It is important to measure ‘honesty’, to facilitate decisions on when to remain invested or sell out of a position. And investors need to buy companies not markets, he added.
What investors should not be less concerned about is any idea that Africa is technologically behind. In many respects there is an ongoing infrastructure deficit, which means that, say, soft commodities exports are constrained. That said, companies such as Microsoft and IBM have key innovation centres in Kenya, illustrating how users of technology such as African consumers are leapfrogging generations of technology: they are not waiting for copper wires to carry their telecoms, but have gone straight to wireless technology.