Will investors heed former World Bank chief’s advice?

Meridiam’s second closing of its Africa infrastructure fund shows both the opportunities provided by the continent and investors’ continued perceptions of it.

It’s not often in life you get to hear first-hand from a former president of the World Bank, a job whose holder will have had to achieve what most of us can only dream of. So when Jim Yong Kim, the most recent occupant of that office, addressed our Global Summit in Berlin last month, it was time to sit up and take notice.

In addition to explaining the reasons behind his move from the multilateral institution to become vice-chairman and partner at Global Infrastructure Partners, Kim had words of advice for the hundreds of emerging-market stakeholders in front of him.

“In the private sector, so many people see Africa as one risk pool,” he said. “If you ask any of the people who work in an IFI [international financial institution] if all of Africa is a single risk pool, they’d laugh at you. If you talk about Senegal versus the Central African Republic or Rwanda versus Burundi, the risks are so different, the politics are so different, the firms are so different, the leaders of firms [are so different].”

On 28 March, French fund manager Meridiam closed its Africa infrastructure Fund for the second time, adding €339 million to the vehicle. It had originally raised €207 million when it launched the fund in 2015, which it deployed in a diversified portfolio of 14 energy and transport projects across the continent. The Meridiam Africa Infrastructure Fund’s initial capitalisation mostly came from IFIs and fell somewhat short of the vehicle’s €300 million target. Fast forward three and a half years, and private capital comprises 70 percent of the fund and it has raised €36 million more than its second target, bringing the total to €536 million.

What’s changed? Did the European pensions and insurance companies that have committed to the fund take Kim’s words to heart and act accordingly? Not exactly.

“The reopening of the fund was quite relevant for private capital,” Mathieu Peller, Meridiam’s chief operating officer for Africa, told us. “The fund already included a portfolio of assets, which reduces the risk of deployment and the risk of these specific assets.”

The message from the private finance sector was clear: show us that this strategy works and we’ll be happy to invest.

On the one hand, that’s standard practice for investors committing to new strategies. On the other, Meridiam is an old hand, with a wealth of experience and a strong track record in developing and building new infrastructure. So you’ll have to forgive us for suggesting the reaction appears to carry a whiff of seeing “Africa as one risk pool”.

That’s not to say investors are wrong to be wary. One of the Meridiam fund’s investments is in a mineral port in Gabon, the country where another French company, Veolia, had its water utility business renationalised following an alleged armed raid on its offices by government officials. Veolia is now seeking World Bank arbitration over the dispute.

Yet the Gabon case is an isolated example and Meridiam has shown it can secure a healthy risk-adjusted portfolio, sometimes backed by IFIs.

There is indeed a fund that has done things in the opposite manner to Meridiam. AP Moller Capital last year raised about $1 billion for its own Africa infrastructure strategy, largely from Danish pension funds, though it remains on the hunt for its first deal.

“It is bridging real versus perceived risks,” AP Moller director Jens Thomassen told us. “[Industry] needs to explain that Africa provides good opportunities where you can make good returns without esoteric risks which scare people away.”

Whether this is achievable or whether conservatism will remain entrenched is playing out as we write this. However, investors would be wise to heed Kim’s words and begin introducing some shades of grey into what can be a very black-and-white view of Africa and other emerging market opportunities.

Write to the author at zak.b@peimedia.com