Tuesday, July 09, 2013

Africa makes the grade for richest US university investors

Americas wealthiest universities are venturing into Africas 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 asignificant 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 $ 400 billion. 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 6.2 per cent. In the same 10- year period, returns for the US S&P 500 stock index were 5.3 per cent.

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 American and other investors to "come down" to Africa. "The growth, consumer spending, improved governance and disposable wealth, theyre all positive stories," said William McLean, who manages Northwestern University's $ 7- billion 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 told Reuters in a telephone interview. "You have to look everywhere for growth." It is difficult to know exactly how many US university endowments have put money in Africa because most prefer not to discuss their investment strategy.

Wale Adeosun, founding partner at New York- based investment firm Kuramo Capital Management, said endowments interest in Africa began after the 2008- 2009 financial crisis. He estimates that 10 to 15 per cent of these institutions are already investing in Africa. Up to 30 per cent may be seriously looking for deals there, he says.

"The larger pools of capital are here in the US and youre seeing the interest picking up about exploring opportunities in Africa," Adeosun added. Many endowments are required or aim to channel about five per cent of their market value to their schools budget each year, to fund scholarships, research and new campus facilities.

The interest means that Africa is attracting a new class of investor - those with unlimited time horizons, in contrast to the speculative hot money that poured into the region before 2008 only to vanish when the global financial crisis hit.

"Its a lot more patient capital and ... the healthy thing about that interest is that its likely to withstand the short term noise around the tapering of QE (US quantitative easing)," said Razia Khan, head of Africa research at Standard Chartered.

Besides offering the possibility of cheaper assets and higher returns that have been hard to come by since the global financial crisis, Africa along with other frontier markets also provides more diversification for the investors.

US endowments awakening appetite for Africa is another sign that the continent is shedding its past reputation for conflict, poverty and aiddependency in favour of a more positive image of progress. Lindel Eakman, Managing Director of private markets at the University of Texas Management Company, told aprivate equity conference in Cape Town earlier this year that Africas reality is different to what is often reflected by media coverage.

Source: Business Standard, July 9, 2013 

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