The resilience of private capital in generating opportunities for East African companies has been demonstrated in the past two years. During this time, fund managers have had to contend with a dynamic environment from within their own fund ecosystem to supporting their portfolio companies as they navigated their own transformation.
The period 2018 – 2019 marked the onset of the changing tides for the private capital industry in East Africa. Driven by the need to find innovative ways for capital deployment while delivering target returns to their investors, fund managers turned to co- investment collaborations and formation of strategic partnerships as avenues to unlock new value to investee companies.
While navigating the Covid-19 global pandemic, private capital investors focused on portfolio optimization and staff welfare as the two leading strategies to navigate the changing investment environment. With investors adapting to the new business reality, most of the polled investors for this survey noted that their imminent action was in portfolio value preservation. As the world re-emerges from the global pandemic, we can expect fund managers to continue proactively engaging with their portfolio companies, helping them adapt to new market demands and adjust to the disrupted business operations.
For funds, one notable change was in the area of fundraising, where traditional engagement was hampered by limitations on travel, affecting due diligence processes as well as contracting. Consequently, the PE industry in East Africa managed to raise $457 million in the year 2020, about half of the amounts raised in 2019. in the first half of 2021, the industry has already surpassed the fundraising sums from 2020, with a record $485 million raised by our survey respondents, and indicating the bounce back of private capital activity beyond 2020.
Post pandemic, the influence of technology in transforming traditional industries and providing and alternative way of life remains a key driver for investment in tech enabled companies. As a result, we observe and increase in deal activity for tech backed companies and conversely the rise of venture capital as a fund strategy for East Africa. We anticipate this trend to remain a main stay in the short to medium term as young companies leverage technology for their own growth.
In all, adapting to change appears to be a mainstay for the private capital landscape in East Africa. From the emergence of micro sector funding, dominance of tech as a value driver, to the growing call for climate conscious investing, fund managers are eager to navigate the changing environment and tap into the opportunities it presents, to transform business while delivering the expected returns.