Valoración de la propuesta mediante la consulta a especialistas

istent with this fund size 0.2 million and USD20 million. the observations identified in the preceding chapter about the structure of Kenya’s private sector. Whereas the narrow segment of the private sector comprising medium and large enterprises can support larger private equity investments, the sized segment of the private sector. It was illustrated in the previous chapter that 80% of Kenya’s private sector is made It is thus unsurprising that deal

This reality has ramifications for the global private equity investor – to whom size owned and foreign-led private equity

Chart 5.2: Fund Structures and Key Personnel

companies interviewed, deals valued at over USD50 million in Kenya are few and far between, while those valued at less than USD20 million abound. FM111 indicated it was winding down its affairs in Kenya as it was not generating sufficient deal flow at the desired size thresholds. It was thus astounding, however, when FM104, one of the locally-owned and locally-led, and older, fund managers roughly corroborated the challenge of deal sizes where global private equity firms are concerned. FM104 related how it had to turn down potentially lucrative partnership deals with a foreign, non-Kenya based, investment fund that was attracted by the generally good returns Kenyan private equity has demonstrated. That global investor conditioned the proposed partnership on an annual deal flow of four investments valued above USD50 million annually. FM104 could not guarantee deal flows at the deal size.

Interestingly, 69% of the Kenyan private equity market in 2010 was under the control of foreign-led private equity funds, with the remaining 31% of the market being controlled by local funds.32Consistent with the respective market shares, it was found that 78% of the funds operating in Kenya featured senior managements comprising over 50% expatriate (non- Kenyan) workers, while only 22% of the funds featured senior managements with more than 50% local (Kenyan) workers. The proportion of foreign-owned and foreign-led funds suggests that local ownership of private equity is still under-developed, giving rise to issues over strategic financial sector development. This reality might also have implications for the policy behind investment restrictions in private equity (discussed further below). These realities perhaps warrant an argument in favour of retaining such restrictions, but in the absence of a clear, written policy on alternative investments such as private equity, it will remain a difficult regulatory point to debate. Focused work in this area would be a worthwhile extension of this work.

32_{By foreign fund is meant a fund led by expatriates and domiciled in a foreign jurisdiction, and the converse is}

These features motivated the need to seek an understanding of fund sources. The evidence shows that 92% of all funds made available for private equity investments in Kenya was sourced from foreign investors, meaning that only 8% of the private equity capital was raised within Kenya. The local funds (excluding government-invested funds) have a combined capital of more than USD300 million dedicated to private equity, and have invested in 23 companies – out of over 181 traced private equity investments in the country up to 2010 July: or 30.7% of all private equity investments in Kenya.33A number of the post- 2000 independent funds have also attracted some local institutional support, signalling the potential of the local market to generate substantial investment funds for this investment class. 34 The trends above suggest, nonetheless, that even the locally owned funds substantially fundraise externally. Local fundraising, therefore, remains constrained, and, industry-wide, the number of local experts engaged at management levels remains low. Recent newspaper reportage confirms this situation prevails.35

Chart 5.3 below illustrates that fund managers in Kenya mostly draw their investment capital from government and development finance institutions (75% of the funds), including European, American, and African development finance institutions.

33 _{Caution in interpreting these statistics is necessary: without a pre-existing and historically significant}

databank of private equity in Kenya, and the inherent inclination within the industry towards limited disclosure, these statistics are without doubt incomplete. Abstractions therefrom must hence relate to the universe of studied instances, as opposed to generalising for the industry as a whole. Their value, however, lies in typifying market trends.

34_{Variously sourced: including through interviews with FM102, FM103, FM 105, FM106, FM107, FM108,}

FM109, FM110, FM111 and FM113, as well as survey questionnaire responses and information from websites.

35_{Cosmas Butunyi, ‘Africa-focused “PE” Way to Go’ (The EastAfrican, Nairobi, 18 February 2012)}

<http://www.theeastafrican.co.ke/business/Africa+focused+PE+way+to+go/-/2560/1330202/-/shvsj6/- /index.html > accessed 19 February 2012

Source: Fund Manager Survey 2010

This is an illuminating finding – suggesting that ‘government’ and ‘government- linked’ institutional investors predominate emerging markets private equity, a position local media anecdotally corroborates.36 In view of the market split between local and foreign funds in Kenya, there is evidence indicating the increasing attractiveness of Kenyan private equity to international institutional investors, supporting the notion of a portfolio diversification strategy.37

Going back to the type of investors in Kenyan private equity, chart 5.3 indicates that pension funds (63%), insurance funds and high net worth individuals (50% respectively) constitute other substantial sources. It is significant, however, that the pension fund investors are largely foreign funds. Pension fund regulations in Kenya limit the exposure of local pension schemes to private equity, a structural barrier to more robust local fundraising for private equity.

36_ibid

37_{Paul Gompers and Josh Lerner,The Venture Capital Cycle(MIT, 2004) ‘What Drives Venture Capital}

Fundraising?’ ch 3, 38-9.

0% 10% 20% 30% 40% 50% 60% 70% 80%

Governments & DFIs Pension Funds Insurance Funds Fund of Funds Banks Corporates High Net Worth Individuals Other