Monday 20 November 2017

Africa makes the grade for US university investors

Tosin Sulaiman Johannesburg

America's wealthiest universities are venturing into Africa's fast-growing 'frontier markets' in search of outsized investment returns that will allow them to offer scholarships, lure star professors and fund research.

For Sub-Saharan Africa, recognition from these deep-pocketed US institutions, who have often earned envy among fellow global investors for their strong returns, marks a significant shift.

American university endowments – permanent funds of educational institutions – pride themselves on spotting new investment opportunities early, such as venture capital, private equity and natural resources such as timber. Combined, they manage assets of over $400bn (€311m).

A study of 831 endowments by the Commonfund Institute and the National Association of College and University Business Officers published this year showed their annual net returns in the 10 years to June 30, 2012, averaged 6.2pc.

In the same 10-year period, returns for the US S&P 500 stock index were 5.3pc.

In Africa, they are seeing many of the trends that played out in emerging markets like China, India or Brazil – strong economic growth, an emerging middle class, greater political stability and improved government balance sheets.

These are just the attractions that US President Barack Obama highlighted on his recent trip to the continent, when he urged US and other investors to "c'mon down" to Africa.

"The growth, consumer spending, improved governance and disposable wealth, they're all positive stories," said William McLean, who manages Northwestern University's $7bn endowment.

His team is investing in Nigeria and Kenya among other countries and recently doubled its exposure to Africa.

"Our motivations are making some money," he said. "You have to look everywhere for growth."

Rockefeller University, a biomedical research institute in New York with around $1.7bn in assets, expects to make an allocation to Africa this calendar year and has identified outside managers, chief investment officer Amy Falls said.

For Indiana-based Notre Dame, Africa accounts for about 2pc of the $8bn endowment. This exposure could increase to 4-5pc in the next five years, said chief investment officer Scott Malpass.

"We've done a lot in China, Brazil, India. As Africa continued to evolve, it was just a natural area for us to spend time there," he said, adding that rising incomes and the improving quality of businesses in Africa were big draws.

Those who have taken the plunge into Africa are treading cautiously, concerned about political risk, corruption and the relative immaturity of markets in the region.

Investors are also gaining comfort from the "slowly increasing" number of good quality managers handling deals in Africa, said a senior private equity executive who said at least five endowments had made commitments to his firm's latest fund.

"They expect who they give money to to be of the same quality as the teams they give money to in the US and Asia," he said, asking not to be named. (Reuters)

Irish Independent

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