East African focused fund manager, Catalyst Principal Partners, has closed its second fund, achieving $155m (Kes.15.5bn) of capital commitments from international and regional investors, as a successor to Catalyst Fund I, a $125m fund raised in 2009.

With over 80% of the international institutional investors in Catalyst Fund II having already been investors in its first fund, Catalyst increased investment commitments from its existing investors by over 30% while attracting capital from new international and regional investors, including local pension funds and family offices.

According to Catalyst CEO, Paul Kavuma, the increased investment by International Institutional investors is a mark of confidence in the economic potential of the East African region. 

“Given that Catalyst Principal Partners is the leading Eastern Africa focused fund investing only within the region, increased interest by International Institutional investors is an indicator of their confidence in the regions strong fundamentals. The East African Region is the continent’s fastest growing region by GDP, a factor that continues to attract investors,” he said.

With commitments from regional investors increasing by a factor of 50% for Catalyst Fund II, the emergence and mobilization of local capital marks the coming of age of the regional private equity industry.

According to Kavuma, the increased interest from investors in the East African region is largely driven by policy reform, investment in infrastructure as well as regional integration and harmonization.

“Catalyst largely focuses on emerging and mid-sized companies with strong growth and profitability prospects. Increasing appetite from both international and regional investors in the private equity asset class, is an indication that East Africa not only presents an attractive investable opportunity but that private equity offers a credible and innovative funding solution for ambitious companies and aspirational entrepreneurs seeking tailored risk capital to support growth and improve performance,” he explained.

In 2009, Catalyst Fund I raised $125m (Kes. 12.5bn) which it invested in nine companies in Kenya, Tanzania and Ethiopia with diverse interests in manufacturing of consumer goods, pharmaceuticals, industrial agro-processing, logistics and engineering as well as healthcare, technology and financial services. 

Catalyst Fund II will invest between $7.5m and $22.5m in emerging mid-market players within Eastern Africa, across key growth sector addressing the demands of increasingly aspirational consumers, underpinned by favorable regional fundamentals. 

The fund will focus on Kenya, Uganda, Tanzania, Ethiopia, Zambia, Rwanda and the Democratic Republic of Congo.

Catalyst Principal Partners invests over a 4 to 6-year investment horizon by taking up significant shareholding, targeting businesses in need of expansion and replacement capital, recapitalizations and pre-IPO investments. 

Through Catalyst Fund II, Catalyst Principal Partners will seek to grow the footprint and impact of private equity funds across the region, enabling more businesses to access innovative financing solutions, while offering value beyond capital to develop leading regional champions of scale.

East African Community and Regional Development Cabinet Secretary Adan Mohamed who officially presided over the close of the Catalyst Fund II closure said the regional Private Equity sub-sector has shown tremendous growth over the years with more firms expressing interest in the  development of regional economies.

“It is also noteworthy that regional investors including pension funds account for close to 20% of the commitments made under Catalyst Fund II, a clear indicator that not only can the region absorb funds and secure a return in investment, but that the region can also raise funds towards its own development,” CS. Adan added.

The Cabinet secretary said the government will continue to undertake reforms aimed at improving the local business environment while also seeking to enter into trade agreements and blocs that expand the market for local companies such as the Africa Continental Free Trade Area (CFTA) agreement signed earlier this year by 44 countries, creating a wider market of more than 1.2 billion people with a combined GDP of $2.19trn.

“The creation of this market will enable the continent to deepen intra Africa trade while at the same time creating growth opportunities for mid-size companies. PE funds such as Catalyst will be instrumental in enabling SMEs tap into this market. Beyond the reforms the government continues to invest in infrastructure both locally and as part of the East African community through initiatives such as the Northern Corridor project to ease connectivity for business.”