With a number of family offices and other private clients on its roster, the private equity firm recently talked to this news service about the dynamics shaping Africa's market.

The private equity story and how it fits into wealth management portfolios hasn’t yet become front-page news in Africa, but momentum appears to be building. 

Last June, Enko Capital, a $1.6 billion AuM African-focused asset management firm managing debt, private debt, equity and private equity investments across Africa, welcomed a commitment from the International Finance Corporation (IFC) into its new impact private credit fund. 

The Enko Impact Credit Fund (EICF), Enko’s first private credit vehicle, was launched in the final three months of last year with $100 million of committed capital from a range of development agencies, an African pension, an insurance company, and a family office. 

Enko manages capital on behalf of almost 50 family offices and wealth managers worldwide. Family office and wealth managers are invested in almost all Enko’s funds across both public and private markets. Interest from investors outside Africa varies and is affected by the relative performance of assets in other parts of the world, it says. Most investors inside Africa are largely restricted from investing outside their domestic or regional market, making them captive to their local market.

EICF’s objective is to invest in a diversified portfolio of US dollar-denominated senior secured and unsecured debt to mid-sized corporates in sub-Saharan Africa, excluding South Africa.

“It could be that this year, Africa will be one of the biggest contributors to global growth,” Cyrille Nkontchou (pictured below), who founded Enko in 2008 – a tough year for global markets – told WealthBriefing in a recent interview. 

Cyrille Nkontchou

While dominant investors in African private equity have been development agencies, the dynamic is shifting. There are more local players such as pension funds getting involved in private equity in Africa. “There’s definitely a shift there,” Nkontchou said. 

“With the notable exception of South Africa, the capital market in Africa is tiny in relation to the size of its GDP, but there is huge room to grow,” he said. “A lot of local pension funds here are flush with cash and are increasingly channelling part of these savings to the private sector. Every time we bring a good equity asset to these markets, it’s over-subscribed.”

A clutch of Africa-focused private equity firms, including Helios Investment Partners ($3 billion-plus capital raised) and Actis Capital, are involved in sustainable infrastructure, in particular the energy, infrastructure, and real estate asset classes. Actis was formed in 2004 as a spinout of CDC Group plc (formerly the Commonwealth Development Corporation), an organisation established by the UK Government in 1948 to invest in developing economies in Africa, Asia, and the Caribbean. Other private equity firms in the category are Development Partners International, African Capital Alliance, and Ethos Private Equity. 

Regionally, in West Africa, there are firms/funds such as Verod Capital Management (with a Nigeria focus), and Sahel Capital. On the East Africa side, there are firms such as Ascent Capital Africa. Ethos Private Equity has a strong focus on Southern Africa. For North Africa, an example is Mediterrania Capital Partners.

Exits
Nkontchou said examples of successful private equity exits are increasing, giving the case of his own firm’s exit from a telecom infrastructure services company. That firm was set up in Cote d’Ivoire in 2009 by two local entrepreneurs and grew to become a pan-African giant by the time Enko exited the investment in 2023.

Recent moves by Enko private equity include buying a controlling stake in a leading banking group in Mauritania through a consortium; it also acquired Burger King’s business in the Ivory Coast; both acquisitions were from international owners.

Infrastructure
One important area of private equity investment in Africa is infrastructure, Nkontchou said. “It is an obvious one given the estimated investment deficit gap of close to $70 billion to $100 billion per annum in Africa infrastructure investment, resulting in lots of opportunities for capital deployment,” he said. 

Africa’s GDP growth, albeit from a low base is significant (compared with certain developed countries and other emerging markets), is an important part of the background, with annual GDP growth forecasts outpacing even Asian emerging markets, he said. The African Development Bank has estimated that Africa’s GDP grew by 4.2 per cent last year.

“There is a fundamental difference in the primary drivers of performance in private equity in Africa versus developed markets; what’s driving performance of private equity investments in developed markets over the past few years has been the availability of cheap leverage, whereas in Africa, what is driving private equity performance is superior real growth,” Nkontchou said.

Africa is well placed to capture the “leapfrogging” impact of adopting new technologies (digital banking, mobile apps, etc) without the burden of legacy systems or technologies. Across Africa, there is an approximate total of $1.1 trillion of domestic savings owned by pension funds, much of which is held in government-run retirement schemes. “The bulk of these savings has traditionally been used to fund local government debt, but that is increasingly going to fund the private sector,” Nkontchou continued. 

There is some activity and growth on the primary side of the capital market (both debt and equity), but activity on the secondary markets is muted. Given their relatively small size, for domestic African firms, the most successful exit from a controlled PE investment will often involve a sale to a larger international business, he said. 

WealthBriefing asked Nkontchou about the trend of lot of large private equity firms delaying their exits and returning money to investors – a process that is causing frustration. (This partly explains why large houses such as Blackstone, KKR and Carlyle have built private wealth channels.)

Enko
Enko manages nine funds and a range of separate accounts and vehicles all focused on Africa. EAPEF I, Enko’s first pan-African private equity fund made seven investments and exited six within the 10-year life of the fund. The fund’s current DPI (Distributed to Paid-In) ratio is 1.4 times. Like most private equity funds globally and in Africa, the fee model is typically 2 per cent per annum in annual management fee (increasingly lower than that) and 20 per cent performance fee over a hurdle of 8 per cent per annum.

The firm targets private equity strategies with a net annual internal rate of returns between 15 per cent and 20 per cent in US dollar terms.

WealthBriefing asked Nkontchou if he sees value in investors owning different fund “vintages” to spread risks between funds. 

“Successful risk management in private equity is about selecting the best managers and limiting uncontrollable macroeconomic risks linked to economic cycles by spreading investments between funds of different vintages,” he replied. Nkontchou said Enko uses limited leverage because often leverage costs are prohibitive given the high interest rates environment prevailing in most African countries. 

Nkontchou brings investment banking and wider financial sector experience to his role. 

Prior to starting the firm, Nkontchou was managing director and founder of LiquidAfrica Holdings, a pan-African investment bank specialising in capital raising and trading in all African markets. Before starting that firm in 2000, he was the head of Sub-Saharan research at Merrill Lynch in London. Before joining Merrill Lynch, Nkontchou was a manager at Accenture in Paris, specialising in financial markets. He holds a BA in economics from Institut d’Etudes Politiques de Paris and an MBA from Harvard Business School.