July 24, 2018
All long-term investors want their money to grow, but many are not solely returns-driven. Increasingly, investors such as family offices, foundations and philanthropic endowments are already growing their capital and leaving a positive legacy. A variety of global unmet needs provide interesting investment opportunities that are off the radar for most investment mandates as they are hard to access.
New opportunities include infrastructure, smaller growth businesses and real estate developments that can meet developing countries’ needs such as housing, food, water, education and energy.
Such assets perform in fundamentally different ways from traditional assets like listed shares and bonds and are typically accessed via private markets. Because private markets have not been accessible to the wider market, capital has not been reaching those areas of the economy that need it most. This is where the opportunity lies for investors wanting to leave a legacy and gain good returns.
One of the investable sectors with wider impact is education. There is a huge need in Africa for more primary and secondary schools. World Bank research shows that in 2015, 27% of the new entrants to primary school in the world were in Africa, up from 15.6% in 1999. Once those learners finish school, they are often faced with restricted choices, so there is also a need for tertiary education.
Our continent’s growing middle class wants a better education for their children and they will be prepared to pay for it.
We are also desperately short of healthcare facilities. According to the International Finance Corporation (IFC), the continent accounts for less than 1% of global healthcare spending and has only 3% of the world’s health workers.
The IFC says there is growing acceptance that the private sector should play a key role in governments’ healthcare strategies. So, for example, Botswana recently opened a new 450-bed teaching hospital using a public-private partnership. The IFC expects spending on health in sub-Saharan Africa will double in the next ten years and investments of $25-30bn will be needed to meet demand.
Proper provision of education and healthcare is linked to the need for energy, an area where several private equity investors are already active in Africa. They are investing in renewable energy sectors ranging from biomass to small-scale generation up to large-scale wind plants and urban waste-to-energy projects.
Food is also good business. The International Food Policy Research Institute and International Institute for Sustainable Development estimate that by 2050 agricultural production will have to expand by 50% to meet the needs of what will be a 10-billiion world population. Most of the world’s hungry people live in Africa.
The areas that need investment include food producers and processors and infrastructure such as transport and storage.
Food production is linked to the need for investment in water resources. It is estimated that by 2030 water demand will exceed current supply by 40%. Addressing that need means investing in technologies such as desalination, efficient water irrigation practices in agriculture, water recycling and technologies to reduce household and municipal demand, such as solar-powered water purifiers and leak monitors.
Fund managers can also encourage water conservation by investing in companies that set targets to track and reduce their water consumption or those that replenish water and return it to local communities.
For investment and development in Africa to take off, basic infrastructure is vital, particularly transport. Only 11% of Africa’s total trade over the past decade was within the continent, according to the UN. The lack of trade routes adds considerably to the cost of doing business in the continent.
Several large-scale transport projects are under way that present opportunities for participating in public-private partnerships, infrastructure funds and bonds. Returns on infrastructure have been better than on other asset classes because of the huge demand for it and the cash flows are highly predictable.
Investing in private markets has historically been reserved for only the largest and most sophisticated investors. However, new financial innovation is creating simplified access to well governed, diversified and relatively liquid investment portfolios that offer commercial returns while leaving a positive legacy.
To find out more about how to access these opportunities, click here.