The asset management arm of the South African-headquartered bank attracted private investors alongside the development finance institutions that anchored the Sub-Saharan debt fund. Investec described it as the “first dedicated African credit and debt capital markets fund of its kind globally”.
Investec Asset Management’s first Sub-Saharan debt fund has raised $226.5 million. The fund will lend in US dollars into a variety of sectors across the continent.
Africa Credit Opportunities Fund 1 was anchored by Dutch development bank, FMO, and the UK’s CDC, a development finance institution (DFI). They have committed $60 million to the venture and were joined by two African pension funds and another European DFI, said Steven Loubser, a portfolio manager with Investec AM. Other investors included insurers, fund of funds and endowments including US-based investors.
The vehicle has a two-year ramp-up period and the assets will have tenors of around five years. With an 18 month harvest period, the lifetime of the fund will be 8.5 years. The fund will target loans to support private equity sponsors across Sub-Saharan Africa, infrastructure projects and real estate projects like shopping centres. To a lesser extent, it could make some investments into African sovereign bonds, Loubser continued.
The geographic focus will be on both West and East Africa with Nigeria expected to make up the largest proportion of investments at roughly 25 to 30 percent. Other target countries include Ghana, Zambia as well as Kenya and the wider East African region. Any Zimbabwean exposure – the country is subject to a raft of international sanctions – would be limited and structured to mitigate the risk, added Loubser.
Giving an example of the kind of infrastructure deals the fund will do, Loubser said the team is working on a loan to finance power ships in Ghana. The West African nation suffers from a chronic shortage of power and though there are longer-term power projects in the works, it plans to contract floating Turkish ships with on-board power generation facilities to cover the worst of the shortfall. The country has suffered a fiscal crisis in recent months and had to seek support from the International Monetary Fund, but given that the power shortages have hampered a previously fast growth rate in Ghana, the power project has IMF support, explained Loubser.
The fund is seeking asset yield targets of Libor plus 6 to 7 percent, putting the return target at Libor plus 6 percent. Asked why investors would consider African credit over lending strategies in more developed markets that offer the same or higher returns, Loubser said the strategy, rather than competing against US and European private debt funds, offers investors extra diversification within their credit allocations.
Loubser also pointed out that in contrast to US and European private debt, there has not been a flood of money into African lending and so Investec is confident that it can deliver its return targets, whereas managers in developed markets face more competition, making initial target estimates harder to achieve.
“We believe we are backing the future champions in their industries across the continent. The large demand for funding on the continent and the lack of dedicated African credit funds should provide a strong investment backdrop, with credit providing an excellent entry point into the long-term African growth story,” said Loubser.
Investec AM has previously managed nine South Africa-focused funds. The new dedicated Sub-Saharan vehicle excludes South Africa. The firm was established in 1991 and had around $120 billion in assets under management, as of 31 May 2015.