BluePeak Private Capital, headed by former Gulf Capital head of private credit Walid Cherif, is in discussions with investors as it seeks to raise up to $200 million for its debut pan-Africa private credit fund.
Cherif left Dubai-based Gulf Capital towards the end of 2018 to establish BluePeak. Whereas his focus was on companies in the Middle East and Africa in his former role, the focus of BluePeak is primarily on Africa.
The fund will target junior capital investments in SMEs, including mezzanine and subordinated debt, and aim to deliver an all-in return of between 15 to 18 percent, comprising contractual yield plus upside from an equity kicker.
Cherif told PDI the fund is likely to make around 50 percent of its investments in North Africa and the other 50 percent in sub-Saharan Africa (mainly East and West Africa, with the South an opportunistic play).
Sectors of interest include healthcare, education, consumer services, telecoms, infrastructure and real estate. Cherif said the firm would avoid highly cyclical sectors, including tourism.
Private equity is much more established than private credit in Africa, but investors have not had a great experience overall, with returns typically in single digits due to currency issues and longer than expected holding periods. Cherif thinks investors are coming to see private credit as more compelling on a risk-adjusted basis.
He said interest in the proposition is coming primarily from development finance institutions with knowledge of the region, which perceive a big funding gap for SMEs in Africa as the banks are often not prepared to support companies through their growth phase. They see private credit as playing a potentially important development role.
There is also some interest, he added, from international commercial investors seeing an opportunity to obtain an attractive cash yield compared with other markets.
Most of the current junior debt funds in Africa, such as Vintage Capital and Ethos, are based in South Africa. There are also some smaller senior debt funds of around $50 million in size, making investments of between $1 million-$2 million.