- October 5, 2022
- Posted by: Aruwa
- Categories: Conferences, Features
Aruwa Capital was a headline sponsor at the inaugural edition of the Private Equity and Venture Capital Association (PEVCA) Nigeria annual conference 2022 themed: The Road ahead- Private Equity for National Development which held in Lagos, Nigeria
Aruwa was also represented one of the panel sessions tagged: “Fundraising – Unlocking Local Capital”.
The panel session was moderated by Adesuwa Okunbo Rhodes, Founder CEO Aruwa Capital and had in attendance top level executives from various spheres- Ozofu Olatunde Ogemudia, Partner Udo Udoma & Belo-Osage Dave Udanu, MD Sigma Pensions Limited CFA Mezuo Nwuneli, Co Founder & Managing Partner Sahel Group Dare Otitoju, Executive Director Stanbic IBTC Pension Managers.
It was a knowledge packed maiden edition of the PEVCA Nigeria annual conference. This years theme: “Private Capital for National Development- The Road Ahead” covered a broad spectrum of important conversations in the private equity and venture capital space in Nigeria and Aruwa Capital Management was pleased to be one of the headline sponsors of the inaugural conference.
Adesuwa had the pleasure of moderating one of the panel sessions: “Fundraising – Unlocking Local Capital” and it was a great conversation taking into account the views of the pension fund administrators (PFAs), the GPs and also from a legal & regulatory standpoint.
With Nigerian pension funds holding cumulative assets amounting to ₦12.31 trillion (roughly $30 billion) across all fund types as at December 2020, the private equity (PE) asset class struggles to access any sizeable allocation of this capital. In February 2019 the regulatory framework through PENCOM made provision for the investment of pension funds in private equity with such investments capped at a maximum of 5% of total assets. Today only 0.29% of the value of Nigerian pension funds have been allocated to PE and when compared to other asset classes, for example, Retirement Savings Account (RSA) Funds in Nigeria may invest between 60-80% of their total assets in government securities, and between 30-60% in money market instruments.
Some of the action points discussed for a breakthrough are:
🎯 Revisiting some of regulations: There are some restrictions for local fund managers to set up PFA compliant funds as a result of regulations which affect the timelines to set up funds, the currency investments can be made in and also the allocation of the fund has to invest in Nigeria. There has to be active engagement and communication with regulatory bodies such as PENCOM and SEC to better understand the restrictions that discourage funds from setting up local PFA compliant funds and work in collaboration to address some of these issues. The recent co-investment framework that allows PFAs to co-invest directly into deals with funds they are invested in, is a step in the right direction but given the limited pool of funds that have received capital from PFAs, it will take some time to the effect of this on the industry.
🎯 PFAs should Lead and not Follow: With inflation at 21% in Nigeria today and fixed income returns at significantly less (low to mid teens), if you have a pension in Nigeria your pension is earning a negative real return and continues to decline, due to the majority of our pension assets being in fixed income today. Research shows that private equity over the long run will always outperform fixed income in terms of financial returns, so PFAs should look seriously at managers that can show a track record, get to understand the underlying businesses they invest in and write first checks and anchor funds without waiting for international investors or development finance institutions. When PFAs in Nigeria are able to lead PE transactions, there is hope for unlocking more local institutional investment into private equity and saving our pension assets from future decline.
🎯 Fund managers must identify and address current realities: Due to the relatively limited number of funds in Nigeria that have had more than one vintage and the lack of track record and history of successful exits in Nigeria, that can provide the PFAs with the comfort they need to meet up with their fiduciary responsibility of safeguarding pension assets, GPs have to communicate clearly their exit track record and also innovate around exit strategies to provide PFAs with the confidence to invest in their funds. Some of the bright spots for PFAs to date have been infrastructure funds and local currency funds. PE fund managers should think about incorporating self liquidating features into their investments as well as communicate clearly, proven and well thought out currency risk mitigation strategies. These are some of the key areas for fund managers to address when in discussion with the PFAs.
It was such an insightful and engaging conversation and a great conference to attend all around. Special thanks to the esteemed panelists and huge kudos to the PEVCA and AVCA teams for a great conference Anna Kovie Evi-Parker Abi Mustapha-Maduakor.