Private Equity (Venture Capital)
Role in Diversification
Contents
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Introduction
VC /PE industry in Botswana
Impact of PE
Economic growth via PE/VC.
Benefits of the industry
Conclusion
VPB
PE in Botswana
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3914 active private
companies
registered(2008)
23 local public companies •
on BSE
Significant economic
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activity independent of
public markets.
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However limited channels
for risk capital flows to
support this activity
PE/VC investment driven
by Public sector
Interventionist
and
development focused
• Early stage focus
• Additionality
Investors
primarily,
CEDA, BDC
Generalist public sector
investors
Alignment of GDP growth
sectors and capital flows
required.
PE in Botswana
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Estimated shortfall in capital for alternative assets (demand side) ±
P3 Bn
Total supply side –P350m?
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Growth in demand:
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BDC
CEDA
Angel Investors
Foreign capital targeting larger scale transactions
BPOPF and DPF (Limited)
Maturity in traditional industries and establishment of new industries.
Extensive corporate leverage
Broadening of economic base away from Government
Growth/Expansion capital beyond the borders
M&A and consolidations
PE can reverse capital outflows to remain in-country as investments
owned locally.
PE and Economic Growth
Why PE (micro)
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Strength and Quality of Partnership
Dynamism and innovation
Focus on growth
Employment creation (Adam Smith)
Corporate Governance
Risk takers
Why PE (macro)
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Provides a formal channel for institutional capital to
flow to sectors defined as risky
Transitions business:
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Economies of scale
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Market maker
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(organically / M&A network of investments)
Develops market for the purchase and sale of businesses
Enable business to transit to public markets
PE provides for growth optimisation through Capital
Accumulation and Innovation (Endogenous) in
emerging markets
Attractive PE industry attracts foreign capital
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New skill sets
Global linkages with local industry
New technologies and methodlogies available to local
companies
PE Growth factors
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Contractual savings industry still
in its infancy
± P60 Bn in retirement and
contractual savings
Industry growth limited by:
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skills,
scale opportunities
leverage
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Minimal allocation to PE
Allocation of Growth oriented
return seeking capital
Asset allocation policy review
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Focus on local and regional
investments
CGT waived on BSE gains.
Review?
Regional PE
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South African PE AUM R162.2 Bn
Nigerian PE AUM at 1% of total pension fund assets
Kenya’s technology industry growth fuelling growth in VC
(primarily foreign corporate venture capital)
International benchmark. PE as a percentage of GDP ±1%
Pension Fund Allocation on average ±4%
SA and Namibia leading institutionalisation of PE through
legislative allocation policies (Reg 28 and 29)
Nigerian PENCOM allows PFAs to allocate maximum 5% to
PE. The PE fund must be registered in Nigeria and 75% must
be invested in Nigeria.
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Nigerian Pension fund assets growing at US$250M per month
Growing recognition that a growing PE market drives Foreign
capital Inflows
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Introduces new skill sets
New industries
Conclusion
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Diversification requires resources
• Productive, Innovative and competitive
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Botswana PE industry needs to be innovative as it
grows
• Closer fusion between Public markets and the Private
Capital market in order to optimise growth.
• Funds are longer term in tenure (>10yr) cycle
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Botswana funds and fund managers have to take
cognisance of local needs and local context
Funds need to drive infrastructure growth, successful
industry sectors and cross border oriented industries
(Scale).
Policy framework should be for establishing scale within
industry sectors.
Policy framework should drive scaleable capital
formation opportunities.
THANK YOU
1st Floor, Block B, BIFM Building
Plot 50676, Fairgrounds Office Park, Gaborone Botswana
Tel +267 (3181012), Fax +267 (3181038)
www.venture-p.com