Africa: Equities And Beyond

for October 2012 showcases five hedge funds that invest in Africa, offering both numbers and insights for each.

The showcasing exercise is a stimulating one, helping us see how far the category “emerging markets” goes beyond the BRICs, and giving a sense (through just these five profiles) of the range of strategies and instruments involved in alternative investments with the continent of Africa today.

Gondo and Altree
Here are some quick data points. Gondo Metsi, a fund managed by Gondo Visio Capital Management, of Johannesburg, South Africa, launched in 2009, has $100 million in assets under management, which makes it easily the largest of the five in this showcase. It is also the most liquid, allowing for withdrawals on a monthly basis. This is possible because Metsi trades chiefly in listed equities (with a long bias) and makes only limited use of derivatives for risk management.

Compared to its peers, GFIA says, Gondo Metsi has “a less concentrated portfolio with relatively higher turnover.”

Also included, the Altree Africa Opportunities, from Altree Wealth Management, created in June 2006. Its portfolio manager is Jenni Chamberlain. It is a family business, Ms. Chamberlain and family members “hold the majority of the ownership of Altree Capital with the rest distributed among the management of the Altree Group.” Chamberlain was the top ranked African research analyst, according to Reuters, for three years running when she was working on the sell side in the 1990s.

Altree is a long-only fund, “structured as a hedge fund to provide flexibility when the market opportunities arise.” Management expects that as the African market matures short opportunities will become available. It also sets aside between seven and ten percent of its portfolio “for trading/opportunistic positions, which could take the forms of fixed income and/or pre-IPO bridging financings.”

Nubuke and Barak
Nubuke Africa Multi-Strategy has, as its name suggests, a wider range of strategies than either of the long-biased equity funds described above. Nubuke trades stocks, index options, futures, and fixed income instruments with its $35 million assets under management.

Nubuke is a small shop, with 3 people on its investment team. GFIA notes that this is “sufficient for the size of the fund at the moment.” The chief investment officer is Tutu Agyare, who was the head of EMEA for UBS from 2001 to 2007.

In order to ensure that its investments will be pan-African, Nubuke limits it exposure to South Africa and Egypt (presumably the two most tempting countries of concentration) to no more than half of its portfolio. Also, GFIA says, “[the] majority of the equity book is allocated to basic materials, consumer goods, financial and insurance sectors, and natural resources.” The equity book accounts for a majority of the fund’s returns.

Barak Structured Trade Finance Fund, founded by Barak Fund Management of Mauritius in February 2009, focuses on mezzanine debt and structured lending. It has the most concentrated portfolio of the five profiled funds, concentrating on between 10 and 15 positions. It also has the shortest investment horizon of the five. It looks to the next three to six months, in contrast for example to Nubuke, which looks out a year to 18 months.

One of the principals at Barak, Prieur du Plessis, headed commodity finance teams both at Absa Corporate and Merchant Bank and at Standard Bank.

Barak’s deal flow is strong, says GFIA, with many repeat clients. Barak “may either finance the buyer or the seller of commodities, but never both at the same time.”

Enko Opportunity Growth
Enko was founded in September 2009 by Enko Capital, of London and Johannesburg. It employs equity arbitraged. It is also involved in initial public offerings, and fixed income products.

As of October 12, 2012, Enko had a modest AUM of $15 million. It limits its exposure to any single stock to 15 percent; to any sector to 35 percent; to any country to 40 percent.

Enko is run by three partners. The brothers Alain and Cyrille Nkontchou ate CEO and CIO respectively, Olivier Heyraud is COO. Each has a banking background with experience in “capital markets, trading, and equity research in sub-Saharan Africa.”

Enko Capital also has plans to launch a private equity fund in the first quarter of 2013.

Research Insights is a publication of GFIA Pte Ltd., the Singapore-based advisory and research firm founded by Peter Douglas 14 years ago.