22 October 2019
By Diana Buraka
Philipp Hildebrand, Vice Chairman of BlackRock, spoke at the Swiss Embassy in London. His speech ‘Value and Value’ accentuated the importance of “sustainable investing” being a catalyst for change.
Hildebrand emphasised an indisputably rising demand for companies which aspire to capture opportunities and mitigate risks associated with the transition from a carbon-based economy. He reminded the audience, that just a decade ago, investors would simply have smirked at the idea of asset allocation primarily targeting social or environmental outcomes. Such a cynical attitude wasn’t entirely unreasonable, because even until recently, sustainably meant trading returns for values. Times have changed, and responsible investment is becoming an advantage rather than an obstacle.
Today, we already see the clear trend of many European asset owners asking for detailed information on how managers incorporate ESG guidelines into their investment strategy. Hildebrand is predicting that Millennials, who will be allocating their wealth over the next 15 years, will increasingly target companies with smaller carbon footprints. Hildebrand foresees that the focus of future investors will be on positive social and environmental outcomes, which will be the catalyst for change.
Investing in Africa – The Challenge of High Returns, Liquidity, Currency Risk and Corporate Governance
by Diana Buraka
Fund managers casting their eyes on hot African ventures. Investing in Africa is still seen as a risky venture, but the quest for higher returns and margins makes this continent attractive for global investors in the long-term. Double digit returns in fixed income investments in selected countries can be attractive in the current low interest rate environment and provide some diversification. Diana Buraka with a report from Fund Forum Africa 2016 in London.
A few years ago one would wonder ‘why’ investing in Africa, whereas now the question is ‘why not’. Considering the growing consumer demand and increasingly liberalised industries it is no surprise that Africa has become a popular destination for business investment.
Diana Buraka, correspondent at FundForum Africa: “Investment in Africa is a very diverse topic. A broad range of views were presented at this year’s FundForum Africa conference. Talking to delegates, fund managers and analysts here it was interesting to see the difference in perspective. Investors and managers based in Africa come up with an assessment which is in contrast to the views of international investors. Overall, Africa is still a continent of opportunities. New technologies, FinTech and innovation in energy and telecom markets as well as financial services represent substantial growth potential.”
Liquidity is a challenge in Africa
But there are also enough reasons to be skeptical about Africa’s sunny growth prospects. Besides corruption, political and systemic risks the number of businesses that are big enough to attract large private equity funds is still limited.
Even when managers have found a promising deal, the owners are often reluctant to give up control. And those who managed to spot the right company and improve its performance within a few years after buying it, struggle to exit by means of an IPO listing due to low liquidity on local stock markets.
Institutional investors face challenges in Africa
For an institutional investor in particular it is very challenging to extract money out of the country or repatriate dividends. This represents a significant risk.
“The biggest fear is getting your money out. Nigeria has imposed capital controls. Egypt has followed a similar approach. If you are an institutional investor or if you are a fiduciary acting on behalf of the pension holders or other investors, you just cannot take such kind of lock up risk in a liquid market. It is just too irresponsible investment, and this is a huge barrier in two of the most liquid markets on the continent” said Adam Choppin, Manager Research – International Equities, Investment Strategy, at FIS Group, Inc at the Fund Forum Africa 2016.
Sound institutional set-up is key for development
Albert Reiter, CEO of e-fundresearch.com and investRFP.com who chaired a high-profile panel at FundForum Africa this year adds: “The institutional set-up in a number of countries is already well developed but the track-record of good governance is still short”. Olusegun Omoniwa, Head of Managed Investments at the Wealth Management Unit of Standard Chartered in Nigeria confirms that there would be a good basis for development of strong local institutional markets: “The pension system in Nigeria is very similar to the one in Chile. Strong domestic institutions and a developed framework could stabilize markets in times of crisis.”
Investors evaluate Frontier Markets in the search for yield
“Talking to institutional bond investors this week I hear that more and more investors start looking at frontier markets also in the search for yield. In the fixed income markets it makes sense to add a few percentage points of double-digit coupons in currencies which have under-performed recently”, explains Albert Reiter from e-fundresearch.com.
The brave will take the risk
Besides the currency risks and plummeting commodity prices, political unrests have lowered the appetite of the more risk-averse fund managers. This may bring down the price tags of the overvalued companies and open up new opportunities for those who are brave enough to take the risk.
“The policies of the Zuma government in South Africa had a negative impact on growth but they’ve been unlucky with the economic cycle also. Both things happened at the same time and that’s a rough cocktail to overcome. I don’t see either of those things changing in the next year” added Adam Choppin by FIS Group, Inc.
More upside on the horizon
Despite some caution there was a rather optimistic outlook on investing in Africa during panel discussions at the FundForum Africa 2016. Stephan Breban, Investment Consultant at RisCura reminded that the biggest headwind for investments in Africa remains to be the misperception and a lack of knowledge also.
“The people will tell you about the oil price collapse, about the political instability, the currency instability, but the reality is, that the number one headwind for in Africa is misperception. People tell you that Africa is failing, but every problem you see is not unique and it was just repeated again. Probably the answer has already been found somewhere.”
Entrepreneurship is Africa’s biggest asset
South Africa is still an important power-house in Africa and home to very dynamic companies and entrepreneurs. With the right policies the country could return to growth. Although the current climate is rather defensive and there is talk about rating downgrades there is also reason to be optimistic.
Albert Reiter: “The most recent elections resulted in some surprises for a number of market participants. Herman Mashaba, the new mayor of Johannesburg who made his money as an entrepreneur in the hair-care business, was offered this job by the Democratic Alliance. He is one of the people to watch as he governs and manages a city of 5 million people – close to 10 percent of the country’s population. If he succeeds it would be very promising for the future of the whole country. He is definitely one to take up the challenge.”
Off to Zurich for the Rothschild Investors Summer Academy this Thursday. Next week exploring the latest on financial markets at the Fund Forum International 2013 in Monaco.