Fund investing remains a central pillar of CDC’s strategy and today we have capital at work in 164 funds operating in 74 countries around the world. CDC is the largest single investor in private equity funds in Africa, supporting 58 funds investing in 32 out of the 54 countries on the continent.
Why CDC invests through private equity funds
In the emerging market context, small or insufficiently liquid capital markets can prevent capital from being directed to its most productive uses and prevent investors from participating in economic activity. In these markets, private equity represents an important source of long-term finance, complementing more traditional bank debt, project finance and shorter-term working capital facilities.
Private equity investors offer more than financial backing. By investing risk capital, they become partners in a firm’s growth, providing technical expertise and networks, introducing international practices, driving operational advances and improving ESG standards. It is a form of capital that allows business to expand, create jobs and ultimately drive growth in their economies.
By supporting the best private equity investors through investing in their funds, CDC can get capital to far more businesses and support more growth and jobs than we would be able to if we only invested directly.
CDC’s commitment to the private equity market in Africa
Private equity remains a nascent industry in Africa. The African growth story – driven by a growing middle class and an increase in demand for goods, services, and supporting infrastructure – continues to draw increasing amounts of interest from international investors, but private equity penetration on the continent remains low.
- Across Africa, the ratio of private equity investments to GDP as of 2012 is just 0.09%, compared with 1.05% in the UK and 0.86% in the US (EMPEA).
- After a peak of US$2.24bn in 2008, post-financial crisis fundraising for Africa has slowed down - with US$1.44bn raised in 2012 – against a figure of US$206bn globally.
Against this background, DFIs remain a crucial source of capital for private equity funds, providing the early financing needed to prove the commercial viability and attractiveness of investing in such vehicles.
From its first fund investment in Africa in 1994, CDC has played a pivotal role in establishing and supporting the growth of the private equity industry in Africa. Since 2004, of 57 Africa fund commitments made by CDC totalling over US$2.3bn, 24 were made to first-time teams totalling US$927m.
At year-end 2014, CDC is the largest provider of capital to private equity funds in Africa, with 582* underlying companies invested through 58 private equity funds managed by 34 fund managers. This represents 9% of all capital committed to Africa-focused private equity funds.
We aim to commit around US$250m each year to private equity funds investing in Africa. In doing so, CDC seeks to maintain a balance of diversified strategies, from generalist and pan-African to highly-focused, whether by sector, geography or size of investee company.
What CDC looks for from fund managers
We aim to maintain and create new relationships with fund managers who are strongly aligned with our mission to build businesses and create jobs across Africa, especially in more challenging geographies. We support strong teams with a deep knowledge of their markets and an ability to identify and add value to those businesses that can grow and create jobs over a medium-term time horizon. All our investment partners must also adhere to our Code of Responsible Investing and work towards achieving good ESG practices at the fund level as well as in their investee companies.
What fund managers can expect from CDC
We provide long-term, patient capital on commercial terms. Our investment processes are rapid, non-bureaucratic and transparent with clear milestones and decision points and our due diligence is designed to add value to businesses and fund managers as well as inform CDC’s own decision making. We have a strong reputation for supporting fund managers to help them achieve good standards of governance and robust environmental and social policies.
As a pioneering investor we work with fund managers to help create new funds, especially in more challenging areas, by proactively encouraging talented new teams and by helping them to attract capital. We have a strong track record of backing new teams and funds.