Veteran investor hits at rock star debt drives
William Wallis | Wednesday, 28 May 2008
Miles Morland, a veteran investor in African stock markets, has a long-standing grievance with non-governmental organisations (NGOs) and rock stars who campaign for debt relief and aid on the continent.
However well-intentioned, he says, they have helped dissuade investment in Africa by perpetuating the image of a region dependant on hand-outs. They may also, inadvertently, have helped Mr Morland carve out his niche.
Blakeney Management, the company he created in 1990, was almost alone investing in countries including Nigeria and Ghana more than a decade ago. It is now the biggest portfolio investor in some African stock markets, with more than $2.0bn under management.
Mr Morland relinquished executive control of Blakeney last year to concentrate on the creation of his new private equity firm, Development Partners International (DPI). This launches at a time of unprecedented but still comparatively small private capital flows to Africa.
In five months of fundraising, DPI has drawn euro230m ($361m) from an eclectic range of investors, themselves illustrative of widening global interest in the continent. US pension funds, European development agencies and the Dubai Group, one of ruler Sheikh Mohammed's investment vehicles, have contributed. DPI is now in negotiations to bring a "large Chinese state entity" on board before closing with a targeted euro 400m.
The fund will prioritise investment in African countries emerging from conflict and economic isolation.
Part of the attraction is that these are mostly overlooked by other fund managers drawn to Africa, who are concentrating on more established markets.
Ethiopia, Algeria and Angola -- three of five countries DPI will initially focus on -- may still conjure up images of famine, fundamentalism and civil war.
To Mr Morland and his DPI partner Runa Alam - formerly of private equity firm Kingdom Zephyr - they present "bursts of energy associated with newly liberalising economies".
"Angola is growing at twice the rate of China while Mozambique and Ethiopia are growing considerably faster than Vietnam or India," he says.
DPI plans to buck another trend that has seen investors pursuing stakes in the commodity boom that has been driven by rising Asian demand for African resources.
"Many people think that the only opportunities in Africa are in commodities and infrastructure.
That's wrong," says Mr Morland. "The best opportunities are the same as in Asia or Latin America. They are to be found in companies providing goods and services to rapidly growing middle classes.
Things like banks, financial services, beverages, telecoms, power, middle income housing and health services."
None of the countries the fund is prioritising have functioning stock markets, although Algeria- has a handful of illiquid stocks and Angola is planning an exchange.
This makes exiting through share offers improbable and selling to trade buyers more likely.
The fund will not be leveraged. "In the developed world, private equity is all about financial engineering: you buy a company for $1.0bn, borrow $0.95bn, pop in a tiny bit of equity and make a killing if you can sell at a profit, or get killed when your financing costs go up," says Mr Morland.
"We are not in that game at all. We are providing equity capital for fast-growing businesses."
There will, however, be co-investment options, so that the Dubai Group, for example, could provide $l00m alongside a smaller DPI stake if substantial opportunities arose.
Tom Volpe, chief executive of the Dubai Group, which is the anchor investor in DPI, says there may be greater risks in the countries the fund is targeting. But with careful research and the right expertise, inefficient markets provide commensurately lower valuations and therefore greater potential profits. "Assuming it works as well as we expect, we will want to increase our exposure," he says.
Under syndication arrangement with FE
However well-intentioned, he says, they have helped dissuade investment in Africa by perpetuating the image of a region dependant on hand-outs. They may also, inadvertently, have helped Mr Morland carve out his niche.
Blakeney Management, the company he created in 1990, was almost alone investing in countries including Nigeria and Ghana more than a decade ago. It is now the biggest portfolio investor in some African stock markets, with more than $2.0bn under management.
Mr Morland relinquished executive control of Blakeney last year to concentrate on the creation of his new private equity firm, Development Partners International (DPI). This launches at a time of unprecedented but still comparatively small private capital flows to Africa.
In five months of fundraising, DPI has drawn euro230m ($361m) from an eclectic range of investors, themselves illustrative of widening global interest in the continent. US pension funds, European development agencies and the Dubai Group, one of ruler Sheikh Mohammed's investment vehicles, have contributed. DPI is now in negotiations to bring a "large Chinese state entity" on board before closing with a targeted euro 400m.
The fund will prioritise investment in African countries emerging from conflict and economic isolation.
Part of the attraction is that these are mostly overlooked by other fund managers drawn to Africa, who are concentrating on more established markets.
Ethiopia, Algeria and Angola -- three of five countries DPI will initially focus on -- may still conjure up images of famine, fundamentalism and civil war.
To Mr Morland and his DPI partner Runa Alam - formerly of private equity firm Kingdom Zephyr - they present "bursts of energy associated with newly liberalising economies".
"Angola is growing at twice the rate of China while Mozambique and Ethiopia are growing considerably faster than Vietnam or India," he says.
DPI plans to buck another trend that has seen investors pursuing stakes in the commodity boom that has been driven by rising Asian demand for African resources.
"Many people think that the only opportunities in Africa are in commodities and infrastructure.
That's wrong," says Mr Morland. "The best opportunities are the same as in Asia or Latin America. They are to be found in companies providing goods and services to rapidly growing middle classes.
Things like banks, financial services, beverages, telecoms, power, middle income housing and health services."
None of the countries the fund is prioritising have functioning stock markets, although Algeria- has a handful of illiquid stocks and Angola is planning an exchange.
This makes exiting through share offers improbable and selling to trade buyers more likely.
The fund will not be leveraged. "In the developed world, private equity is all about financial engineering: you buy a company for $1.0bn, borrow $0.95bn, pop in a tiny bit of equity and make a killing if you can sell at a profit, or get killed when your financing costs go up," says Mr Morland.
"We are not in that game at all. We are providing equity capital for fast-growing businesses."
There will, however, be co-investment options, so that the Dubai Group, for example, could provide $l00m alongside a smaller DPI stake if substantial opportunities arose.
Tom Volpe, chief executive of the Dubai Group, which is the anchor investor in DPI, says there may be greater risks in the countries the fund is targeting. But with careful research and the right expertise, inefficient markets provide commensurately lower valuations and therefore greater potential profits. "Assuming it works as well as we expect, we will want to increase our exposure," he says.
Under syndication arrangement with FE