Key pointers for investors in Africa

Investing in Africa can be difficult. With a large millennial population, tech and VC opportunities abound but other factors - such as currency volatility, oil prices, and geopolitical risks, mean that investing in the region can be challenging to navigate.

Based on some of the key conversations that took place at FundForum Africa 2016, here are some key pointers for investors in Africa:

• Investor interest in Africa is still strong but institutions must be cognisant the continent is highly fragmented and complex. Each market is unique.

• Appetite in public equities remains limited due to poor performance but bonds in many of these frontier economies are posting excellent yields, which are over and beyond developed market bond yields.

• Public equities and bonds in most African economies (barring South Africa ad Nigeria) are illiquid. Some of the smaller African markets may only have a handful of listed securities. The opportunity set for nimble or boutique asset managers is promising, but large institutions may struggle.

• Investors need to take a long-term view of Africa and not be scared off by the recent substandard performance, mainly attributed to commodity price declines and volatility in China. Many African assets are undervalued and this presents huge opportunities for private equity, infrastructure and venture capitalists.

• Frontier African economies should not feature in UCITS portfolios. UCITS are subject to strict liquidity terms and assets in parts of Africa cannot simply be offloaded to meet daily or weekly redemption terms. Depositaries may also be loath to support UCITS operating in illiquid markets for obvious liability reasons.

• Convertibility is a problem. Some regimes including Nigeria have currency controls in place making it difficult to retrieve assets from the country. This is a huge impediment for foreign investing.

• African corporates are becoming more transparent and accountable to shareholders. Significant improvements in infrastructure and the overarching legal frameworks in some markets has made African companies more appealing to international investors, many of whom have had long-standing concerns about the corporate governance and inherent lack of disclosure at some of these firms.

• Due diligence is a must when investing in Africa. Engagement with local regulators and experts on the ground is cornerstone to enabling sound investments. A failure to undertake due diligence can lead to bad investments or worse.