The majority of investors (82%) surveyed by the African Private Equity and Venture Capital Association plan to increase or maintain their African private equity (PE) allocation over the next three years.

The risk-return profile and performance are viewed by most Limited Partners (LPs) as the two main factors driving their strategy.

This is according to the AVCA’s inaugural survey, which examines global and African LPs and General Partners’ (GPs) attitudes to investing in African private equity (PE) across many categories including attractiveness, geographies, sectors, challenges and returns.

Enitan Obasanjo-Adeleye, Head of Research and Training, AVCA, said: “The extensive data collected from a wide range of LPs and GPs shows that investors remain positive about Africa as an investment destination of choice in the longer term.”

“As the voice of the industry, AVCA looks forward to engaging even more closely with our members and publishing objective and robust insights to help catalyse African private equity and accelerate development across the continent.”

In terms of the attractiveness of African PE, 59% of LPs view the continent as more attractive than other emerging markets over the next ten years, while half of LPs (50%) view African PE as more attractive than PE investment in developed markets over both a five-year and a ten-year time horizon.

In terms of geographies, 88% of LPs cited West Africa, while 89% of GPs cited East Africa as an attractive region for PE investment over the next three years.

Specifically, Kenya and Nigeria are viewed by LPs and GPs as the most attractive countries for PE investment over the same timeframe.

This marks a significant improvement for Kenya, which was ranked second after Nigeria by LPs in AVCA’s 2016, 2017 and 2018 surveys.

According to the survey, LPs view Consumer Goods, Agribusiness and Financial Services as the most attractive sectors to invest in over the next three years, while GPs see Agribusiness, Consumer Goods, Financial Services and Technology as the most promising sectors over the same period.

The majority of LPs (78%) would consider investing in a first-time fund manager and over half (55%) have done so over the last five years. LPs view currency risk, political risk and relatively long holding periods as they biggest challenges they face when investing in Africa.

In terms of potential obstacles to investment in Africa, LPs see limited exit opportunities and the fundraising environment as key challenges for GPs on the continent over the next three years, while GPs cited a challenging fundraising environment and limited exit opportunities.

Notably, more than half (52%) of GPs citing the fundraising environment as a major challenge in the short-term will be raising new Africa funds over the same period.

According to the survey, the majority of LPs (69%) and GPs (86%) believe that local capital will catalyse the PE industry in Africa. Meanwhile, over half of LPs (53%) say that co-investments will play an important role in Africa over the next three years and almost two-thirds (64%) of GPs view Permanent Capital Vehicles as a key development that will spur growth in the industry.

With regards to returns, most LPs (78%) believe that African PE returns will be similar to or will outperform other emerging markets over the medium to long-term, while almost half of LPs (48%) expect African PE returns to outperform developed markets over the next decade.

Finally, while 17% of LPs expect African PE returns to exceed 3.0x over the next ten years, this proportion increased to 50% for GPs.

The Industry Survey also features key insights on attitudes towards Environmental, Social and Governance (ESG) criteria, co-investments, exit routes, the macroeconomic environment, entry valuations, and GPs’ priorities and strategies.

Matthew Hunt, Director, South Suez Capital, said: “AVCA’s inaugural Industry Survey provides valuable findings on our industry’s expectations and challenges over the next few years. The data is highly encouraging: the majority of LPs plan to increase their commitments to Africa and view the continent as more attractive than other emerging markets over the next five to ten years.”

Ziad Oueslati, Managing Director and co-Founding Partner, AfricInvest & Vice Chair, AVCA, added: “As shown by this year’s Industry Survey, international and African investors continue to pay close attention to the African private equity ecosystem. The industry has demonstrated its resilience in recent years and the outlook for African private equity is promising despite a challenging fundraising environment.”