Africa’s SWFs pledge to work together

Recent initiatives suggest a growing sophistication amongst Africa’s sovereign wealth funds as they seek to conform to international governance practices and pledge to boost co-operation and co-investment across the continent and around the world.

African funds with a collective $12.6 billion asset under management have formed the African Sovereign Investors Forum (ASIF). The new club combines investors with shared goals and missions, focusing on the internationalisation of companies, the promotion of economic and social development and pledging to increase investment in Africa.

“ASIF is expected to be a game changer for the continent. This dimension of collaboration will catalyse Africa’s anticipated growth,” said Uche Orji, managing director and chief executive officer of the Nigeria Sovereign Investment Authority, NSIA, speaking at ASIF’s launch. “Co-investing by sovereign investors has capacity to unleash growth opportunities across the continent.”

The alliance doesn’t include Libya’s Investment Authority or Botswana’s Pula Fund. But it does include two fledging African funds from Ethiopia and Djibouti. Ethiopian Investment Holdings (EIH) was founded in January 2022 as a holding company under local law. Its primary mandate is to unlock the value of the government’s assets through commercial management and optimisation and ready them for privatisation as well as acting as a reliable local partner for foreign direct investment. EIH is modelled on Temasek and Khazanah.

Djibouti’s Fonds Souverain de Djibouti (FSD), set up in March 2020, is also in the club. Its multidimensional mandate is focused on investing locally, regionally and internationally to catalyse sustainable and inclusive economic growth for the diversification of Djibouti’s economy, the creation of jobs and building reserves for future generations. Strengthening corporate governance is a key enabler to successfully partnering with domestic and foreign private sector participants and ultimately achieving its mission.

In other developments the Gabonese fund, FGIS, founded in 2012, recently make a formal commitment to net zero. FGIS manages around $ 1.7 billion of which 78 per cent is invested in the domestic economy.

Record breaking year

Africa’s ascendancy into the world of SWFs marks a record-breaking year for investment by SWF’s.  According to a June report from the International Forum of Sovereign Wealth Funds, IFSWF, the global network of sovereign wealth funds from over 40 countries, three key themes dominate investments over the last year.

2021 broke records for the number of direct investments made by sovereign wealth funds, jumping from 316 in 2020 to 429 in 2021, a 50 per cent increase year-on-year, and a 60 per cent increase in the average number of deals in any of the previous five years. The value of those deals also climbed in 2021, reaching $71.6 billion, up from $67.8 billion in 2020. In 2021, sovereign wealth funds not only invested in digital technologies but also put more capital into hard assets.

Sovereign wealth funds have been increasing allocations to unlisted assets for the best part of a decade. But now, rather than distinguishing between listed and unlisted assets, sovereign wealth funds seek to generate real durable value by backing less mature companies instead of recycling existing wealth and boosting returns by occasionally making contrarian bets in times of market dislocation.

The report also highlighted the link investors are finding between real assets and real returns. Infrastructure assets play an important role in diversifying sovereign wealth fund portfolios. COVID-19 has had a range of effects on infrastructure. For some sub-sectors, such as passenger-linked transport assets, 2020 and 2021 were difficult years. For others, such as digital infrastructure and renewables, they were standout. Sovereign wealth funds have backed these trends, which will benefit from the energy transition and rising demand for digital services.

“The COVID-19 pandemic fundamentally changed the global economy and the investment environment. Our data reveals that sovereign wealth funds have been foresighted and looking to generate robust long-term returns by taking advantage of the effects that the pandemic has had on a range of secular megatrends,” said Duncan Bonfield, IFSWF chief executive.