Worldwide: Africa Clean Sweep – What Now And What Next?

Last Updated: 21 December 2016
Article by Patrick Colegrave

Adding to our success at The Lawyer and HFM Awards, Harneys was privileged to win twice at the inaugural Africa Global Funds Awards held recently in Cape Town.  The Africa Global Funds Awards were created specifically to honour and generate both industry and public recognition for fund service providers focused on Africa and are the only international awards of their kind.

We were successful both in the Best Offshore Law Firm and Best Offshore Law Firm – Client Service categories, effectively giving us a clean sweep of the awards designated to offshore law firms against some well regarded and formidable competitors.  Given that I head up our Africa Practice and for the last 5 years have had a strong focus on the funds industry in Africa, these wins saved me from some awkward internal conversations and allowed me to breathe a long sigh of relief.

Now that we've got these two awards under the belt, I thought it might be of interest to readers to give my take on the current state of play of the funds industry in Africa and what next.  This is not based off any particular research, but rather is drawn from my own experiences through the year, as well as conversations that I've had with other industry participants.  My bias is strongly towards the open-ended side of things purely because this is where we see most of our Africa focused funds work. I suppose I should also include the usual disclaimer about this not constituting investment advice etc., trust me if I had any ability on the investing front I wouldn't be plying my trade as a lawyer.

For those in the know, I'm at severe risk of stating the obvious when I say that 2016 has been a challenging year.  To echo a good friend of mine who is an investment manager with over 20 years experience of investing in the continent, there is at best muted investor interest in Africa focused funds at the moment with a large number of managers just trying to stem the flow of cash heading for the door.  Basically returns through 2016 have not been great, partly due to the downturn in commodity prices and compounded by liquidity issues in countries such as Egypt, Nigeria and Zimbabwe, falling currency prices against the US dollar and political issues.

This all might make for gloomy reading, but not necessarily if you are an investment manager with a strong stomach, decent track record and real experience of operating in Africa and navigating the challenges and curve balls that the continent invariably throws up.  I fully subscribe to the view that what we are seeing is cyclical and to revert back to my investment manager friend, there are some fantastic buying opportunities out there because of depressed asset prices.  Investor flow concerns are also not unique to Africa and are plaguing managers in other markets as well.

Going against the general trend seems to be the commodity trade finance space.  We are fortunate to have been involved in a number of fund launches in this space during the course of 2016 which indicates investor interest and positive investment flows and from where we sit, performance seems to be pretty decent as well.

Another trend we have picked up on is South African based investment managers running global strategies to tap into the increasing foreign currency remittances being made by South African residents with the spare cash to take advantage of their annual foreign currency allowance.  This is largely a hedge by South African residents against political risk and currency risk and whilst the funds we have been involved with having this theme are small in size, I expect this trend of expatriating funds outside of South Africa to continue.

To finish off then, what do I think this all means for us? Well in the short to medium term, I do not expect to see any great boom in fund launches for Africa focused funds.  We are fortunate to act for some of the bigger names running Africa focused dollar denominated funds and I expect that these funds will survive and perhaps attract new capital as the buying opportunities and value out there becomes apparent.  Again at the risk of stating the obvious for anyone involved in our industry, I expect the smaller funds being run by the less established managers to be under the most pressure in weathering the storm.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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