from The New York Times..
July 7, 2013
JOHANNESBURG — America’s wealthiest universities are venturing into Africa’s fast-growing frontier markets in search of outsized investment returns that will allow them to offer scholarships, lure star professors and fund research.
For Sub-Saharan Africa, recognition from these deep-pocketed U.S. institutions, who have often earned envy among fellow global investors for their strong returns, marks a significant shift.
American university endowments – permanent funds of educational institutions – pride themselves on spotting new investment opportunities early, such as venture capital, private equity and natural resources such as timber. Combined, they manage assets of over $400 billion (268 billion pounds).
A study of 831 endowments by the Commonfund Institute and the National Association of College and University Business Officers published this year showed their annual net returns in the 10 years to June 30, 2012, averaged 6.2 percent.
In the same 10-year period, returns for the U.S. S&P 500 stock index were 5.3 percent.
In Africa, they are seeing many of the trends that played out in emerging markets like China, India or Brazil – strong economic growth, an emerging middle class, greater political stability and improved government balance sheets.
These are just the attractions that U.S. President Barack Obama highlighted on his recent trip to the continent when he urged American and other investors to “c’mon down” to Africa.
“The growth, consumer spending, improved governance and disposable wealth, they’re all positive stories,” said William McLean, who manages Northwestern University’s $7 billion endowment.
His team is investing in Nigeria and Kenya among other countries and recently doubled its exposure to Africa.
“Our motivations are making some money,” he told Reuters in a telephone interview. “You have to look everywhere for growth.”
It is difficult to know exactly how many U.S. university endowments have put money in Africa because most prefer not to discuss their investment strategy.
Wale Adeosun, founding partner at New York-based investment firm Kuramo Capital Management, said endowments’ interest in Africa began after the 2008-2009 financial crisis. He estimates that 10 to 15 percent of these institutions are already investing in Africa. Up to 30 percent may be seriously looking for deals there, he says.
“The larger pools of capital are here in the U.S. and you’re seeing the interest picking up about exploring opportunities in Africa,” Adeosun added.
Many endowments are required or aim to channel about 5 percent of their market value to their school’s budget each year, to fund scholarships, research and new campus facilities.
The interest means that Africa is attracting a new class of investor – those with unlimited time horizons, in contrast to the speculative hot money that poured into the region before 2008 only to vanish when the global financial crisis hit.
“It’s a lot more patient capital and … the healthy thing about that interest is that it’s likely to withstand the short term noise around the tapering of QE (U.S. quantitative easing),” said Razia Khan, head of Africa research at Standard Chartered.
Besides offering the possibility of cheaper assets and higher returns that have been hard to come by since the global financial crisis, Africa along with other frontier markets also provides more diversification for the investors.