TLG Capital launching open-ended African credit fund

The African private equity firm spies an opportunity for strong returns from structured debt solutions for African SMEs.

TLG Capital is planning to launch an open-ended African credit opportunities fund in January.

Nicholas Hofgren, a director with TLG’s advisory board, told PDI the Cayman-registered vehicle, TLG Credit Opportunities Fund, will offer an annual liquidity gate and is seeking to raise $150 million from high net worth individuals and institutional investors.

The private equity firm currently has TLG Africa, a permanent capital vehicle that will seed TLG COF with $15 million.

The new credit fund will target US dollar-denominated three- to five-year senior secured loans of up to $15 million for small to medium-sized enterprises in sub-Saharan Africa.

The firm has been making credit investments in Africa for a number of years and structures deals with a collateral package that more than covers the loan facility.

Hofgren said it then works with local banks to cover the facility with a guarantee by the bank lender so that in case of default the bank is responsible for recovery through the collateral package.

The cash yield on the facilities is typically 10-15 percent with a gross IRR target of 25 percent. The facilities, though senior secured, are structured to include some kind of equity-like kicker, such as warrants or catch-up provisions. The strategy is focused on cash returns, however, with the catch-up provisions designed to produce a payout rather than an equity stake is virtually impossible to sell, said Hofgren.

He added that while private equity in Africa offers rich opportunities on the back of demographics and rising consumer demand when the sponsor wants to exit options are limited.

TLG Africa, the permanent capital vehicle that the manager currently invests from, has returned 28 percent to investors since 2010, said Hofgren. It recently signed a $7.5 million credit line with AfrAsia Bank.

Hofgren is one of a number of hires by the firm this year. He joined to lead TLG’s fundraising and environmental and social responsibility efforts and is a member of the investment committee. He was previously head of EMEA at JPMorgan Private Funds Group.

Two investment professionals have also joined, David Webb, a former Goldman Sachs and TSU Capital managing director, and Zhiyong Heng, who has worked at DL Partners and Goldman Sachs.

Africa-focused TLG Capital has made 16 investments and exited five.