Funds Raised Towards Global Private Equity Declined 67% in H1’2019

A recent report released by Emerging Markets Private Equity Association (EMPEA), a global industry association for private capital in emerging markets, has shown that fundraising in the global private equity space has declined by 67 percent in H1’2019.

The report dubbed Mid-Year 2019 Statistics Report highlighted a significant drop in funds raised towards private equity, to USD 165.0 billion (17.1 trillion shillings) in H1’2019, less than 33.0percent of the USD 505.6 billion (52.4 trillion shillings) raised in FY’2018.

This slowdown in funds channelled towards private equity can be attributed to the general uncertainty in the global market, driven by factors such as the trade wars between the US and China, Brexit, and a slowdown in the economies of European Union countries.

From a geographical aspect, the US saw the largest level of capital raised, at USD 94.8 billion (9.8 trillion shillings), compared to Western Europe and all other developed markets collectively, which raised USD 35.8 billion (3.7 trillion shillings) and USD 2.5 billion (259.5 billion shillings), respectively.

Emerging markets raised USD 33.1 billion (3.3 trillion shillings), of which USD 1.6 billion (166.1 billion shillings) was raised by African PE funds.

This was an improvement compared to H1’2018, where African PE funds raised USD 990.5 million (102.8 billion shillings). However, there was a spike in H2’2018 where USD 2.1 billion (217.9 billion shillings) was raised.

Of the funds raised by African PE firms, buyout and growth continue to be the most favoured strategy by investors, raking in USD 783.0 million (81.3 billion shillings), followed by infrastructure and real assets, at USD 567.0 million (58.8 billion shillings).

Venture capital still continues to struggle with growth, with only 2 out of the top 10 funds closed in Africa focused on venture capital, i.e. Partech Africa Fund and KawiSafi Ventures. It remains to be seen whether a similar spike will be witrillionessed in H2’2019, albeit this will be unlikely, given that there has so far not been increased fundraising activity in Q3’2019.

Development Partners International, a London-based Africa-focused private equity firm, in collaboration with Convergence Partners, a South-African impact investment company, have announced an investment of USD 54.0 million (5.6 billion shillings) in Channel VAS, a FinTech company with operations in Africa, Asia and the Middle East that advances micro-credit to individuals through mobile money transfer, for an undisclosed stake. Channel VAS has grown from its inception in 2012 to its current scale of 30 countries, serving over 650 million individuals in these jurisdictions, and advancing over USD 5.0 million (518.7 million shillings) daily.

Apart from cash, the company also advances loans in the form of airtime, data and mobile handsets. The funds raised are expected to be utilised in Channel VAS’ target of providing over USD 1.5 billion (155.6 billion shillings) of credit to hundreds of millions of people globally through its partrillionerships with mobile network operators and financial institutions.

This investment came less than ten months since South African private equity firm, Ethos, announced a USD 49.0 million (5 billion shillings) investment into Channel VAS for an undisclosed stake, with the funds intended to be advanced towards the expansion of Channel VAS’ footprint globally.

FinTech lending and microfinance institutions, in general, have been a major attraction for investors in Kenya and Sub-Saharan Africa. Lack of access to finance is a major issue for entrepreneurs and Micro, Small and Medium Enterprises (MSMEs) across Africa.

According to the IMF, there are 44.2 million MSMEs in Sub-Saharan Africa with a potential demand for USD 404.0 billion in financing. The current volume of financing in Sub-Saharan Africa is estimated at USD 70.0 billion signifying a huge financing gap of USD 334.0 billion. Microfinance institutions aim to bridge this gap by offering convenient access to credit.

Source: Cytonn Report Weekly #39/2019