Financial Times

| 01 November 2007

South Africa courts US funds

South African private equity firms hope to collect hundreds of millions of dollars from some of the biggest US investors, which are visiting the country this week in a push to increase their investments in African buy-outs.

by Martin Arnold in London

The investors, including Washington State University, Chicago Teachers Pension Fund and Los Angeles City Fire & Police Retirement System, are to spend five days in Johannesburg and Cape Town, hunting for opportunities.

Several pension funds on the roadshow have no direct investments in African private equity firms. Some of the bigger US funds, such as Calpers, have already invested several hundred million US dollars in African private equity.

Interest in potential for private equity in South Africa and the sub-Saharan region has grown among international investors after a series of deals, such as Bain Capital's $3.5bn (€2.41bn) purchase of Edgar's Consolidated Stores, a South African retailer, this year.

Investments in African private equity have more than doubled in a couple of years, as big US, European, Middle East and Asian institutional investors have raised their allocation to emerging markets and sought to diversify their portfolio.

Fears that the US and European economies could be about to slow down, and worries about the credit squeeze impact on "mega buy-outs" in these markets have prompted investors to look for opportunities elsewhere.

In the year to October, subSaharan African private equity firms raised about $2bn, against $2.35bn in all of 2006 and less than $1bn in 2005.

Peter Schmid, head of African operations at Actis, one of South Africa's biggest private equity investors, said Africa was "the last frontier of investment in the globe and a very underpenetrated market".

Mr Schmid said half of the investors in Actis's $570m Fund 2, closed three years ago, were from North America.

Jennifer Choi, researcher at the Emerging Markets Private Equity Association, said that investor confidence in the region was bolstered by the recent sale of private equity-owned businesses.

Emerging Capital Partners, one of the larger regional African funds, recently made three times its initial equity investment by selling its stake in Ecobank, the Togo-based lender with operations across the continent.

International interest in Africa was underlined by last week's $5.56bn investment by Industrial and Commercial Bank of China in South Africa's Standard Bank.