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New regulations in Namibia, requiring institutional investors to invest a minimum percentage of their assets into unlisted assets, are set to provide a significant boost to private equity.
Daudi Mtonga, the director at private equity firm VPB, explains that the new regulations prescribe that long-term insurance companies and pension funds must now invest a minimum of 1.75% of their market values domestically into unlisted investments, with a maximum investment of 3.5%. This is a new asset class introduced by Regulations 28 and 29.
CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), Erika van der Merwe, says that this is a significant development to unlock the potential Namibia’s private sector. While research points to significant fundraising success for private equity funds in sub-Saharan Africa, the private equity market in Namibia is relatively untapped.
Van der Merwe adds that policies such as these are necessary to increase economic activity in the Namibia’s private sector:
As is the case in many African jurisdictions, supportive policies are necessary to encourage asset owners, including pension funds, to consider the valuable role that private equity can play in supporting economic development and growth, while providing the returns and diversification required in a diversified, long-term institutional portfolio.
As a result of the change in regulation, the industry has seen a number of Special Purpose Vehicles (SPVs) set up as private equity funds with related fund management companies, and these managers are in the process of raising capital.
According to the Namibia Financial Institutions Supervisory Authority (NAMFISA) 2015 Annual Report, it is estimated that close to N$3 billion will be allocated to this new asset class. The market expects the allocation by 31 December 2015.
Mtonga expects that the asset class will offer life-giving opportunities for investors in the coming years:
The private business market represents the largest economic activity in the region, but, in many markets, formal channels for the flow of capital to fund these activities are still limited. There definitely is a growing requirement for growth capital, with demand currently exceeding supply.
Image by jbdodane via Flickr