Public Investment Corporation Seizes Private Credit Opportunities in Africa

The Public Investment Corporation of South Africa identifies private credit as a growth opportunity in Africa, with a recent investment of around 8 billion rand beyond its home market. The PIC emphasizes the need for private investments and partnerships to address Africa’s infrastructure needs, estimated to require between $130 billion and $170 billion annually.

South Africa’s Public Investment Corporation (PIC), the nation’s largest money manager, recognizes private credit as a key growth area in Africa as it sheds its reliance on the domestic market. With government pension funds amounting to approximately 3 trillion rand ($163 billion), the PIC has allocated around 8 billion rand to investments in Africa over the past two years, according to Chief Investment Officer Kabelo Rikhotso, who spoke at a conference in Cape Town.

The PIC refrains from investing in publicly traded equities in other African regions due to their smaller, illiquid nature. Additionally, private equity is not a viable option, as many African companies are family-owned and resistant to equity dilution. However, there is a substantial demand for private credit, which is considered a viable avenue for investment.

Rikhotso stated, “We do think that to play in Africa, you have to be in private markets. Private equity hasn’t worked, but private debt is working well. You fund, and you receive your interest.” He emphasized that private credit serves as a critical mechanism for funding vital infrastructure development across Africa, which suffers from deficits in energy, water, logistics, and digital infrastructure, necessitating investment of between $130 billion to $170 billion annually, according to the African Development Bank.

To manage political and regulatory risks, the PIC primarily invests via intermediaries such as the African Finance Corporation. Their recent investment of $100 million in Africa 50, a subsidiary of the African Development Bank, aims to mobilize both public and private financing for expansive infrastructure projects. “What we’ve learned on the continent is that you can’t just go in and do it on your own,” Rikhotso noted, stressing the importance of diversified investment vehicles and partnerships in private markets.

Currently, the PIC has approximately 12% of its portfolio invested offshore, which is under the regulatory cap of 45% for private fund managers. Of this, 4% is allocated to emerging markets, predominantly in China and India, demonstrating strategic geographical diversification in their investment approach.

In summary, the Public Investment Corporation is focusing on private credit as a strategic opportunity for growth beyond South Africa. This approach emphasizes the importance of partnerships and diversified investing in addressing the substantial infrastructure funding gap across the African continent. The organization aims to maximize its offshore investments while cautiously navigating the complexities of African markets.

Original Source: financialpost.com