Africa-focused private equity firm Phatisa has reached a first close on $121.5 million for its second fund, which will seek investments of between $15 million and $25 million across the region’s food value chain.
Phatisa Food Fund 2 has a target of $300 million and has already secured investments from the African Development Bank and the Overseas Private Investment Corporation, an American developmental finance institution. The vehicle will seek net IRRs in the low 20s through buy-out and growth investments in sectors including mechanization, inputs, protein and commodity processing, manufacturing, logistics and fast-moving consumer goods.
In addition, Phatisa is collaborating with Washington DC-based nonprofit TechnoServe to raise a distinct technical assistance facility that will finance projects designed to strengthen the capacity of its portfolio companies and communities where they operate.
The Mauritius-headquartered firm’s first fund, the Africa Agriculture Fund, closed in mid-2013 on $246 million after securing commitments from the African Development Bank; DFIs in Spain, US and France; and private investors in the US and Europe.
Though developmental finance institutions played a key role in the firm’s first fund and have been counted among investors already committed to its successor, Phatisa founding partner Stuart Bradley told Agri Investor the firm has deliberately aimed to increase the participation of private investors in its second vehicle.
“One of DFIs’ mandates is to start fund managers, so they will often be in first-time funds,” Bradley explained. “One of their developmental ticks is to make sure there’s more commercial private capital coming to Africa, so it’s a natural progression.”
As the firm looks to expand its outreach to private investors, Bradley said, it has focused on funds of funds, asset managers, US university endowments as well as pension funds in South and East Africa, Europe and the US.
“You are seeing that in family offices, there are a number of them out there that have a desire for achieving impact as well as financial return,” Bradley said. “There are also a few strategics as well – we’ve got one already in and we are talking to others. They want to invest in us because it might give them access to our portfolio companies, co-investments and knowledge-sharing, and to take a toe-hold in a business and then potentially exiting it from us.”
Bradley said that targeting net IRRs in the low 20s for Phatisa Food Fund 2, and looking to triple capital invested in portfolio companies, is an important part of the firm’s effort to increase participation of private investors, which make up 70 percent of commitments constituting the first close.
“At the end of the day, if we’re trying to attract capital out of US pension funds and Europeans, we have to give them hard-core returns, otherwise they are not going to come. They are not going to come here just for the SDGs.”
The UN’s Sustainable Development Goals have, however, played a role in the way Phatisa has defined the impact elements of its own investments. Those are concentrated on the first two of the 17 developmental goals, which focus on eliminating poverty and hunger. Bradley said the firm tracks metrics including the amount of food produced, the number of women participating in businesses, the number of jobs created and others that are reported annually. In addition, Bradley said, an in-house ESG- and impact-focused team participates in deal sourcing and monitoring for Phatisa.
Phatisa, which in May hired former Bridgepoint Capital director Robert Jenkins to serve as senior partner and acting chief investment officer, says it focuses on building and exiting regional platforms in west, east and southern Africa. Vincent Destieu, a principal at the firm, told Agri Investor that agricultural inputs, also a focus of the firm’s first fund, provided an example of how its regional strategy will be implemented.
“Right now, we believe there is a strong opportunity in that sector [ag inputs] in West Africa, because it’s been a bit fragmented and overlooked,” Destieu said, adding that the firm plans to soon open an office in Ivory Coast.
“We are looking at an agri-input platform built by acquiring existing assets with an existing footprint in west and central Africa, especially Francophone Africa, and using that pull to build a proper platform from Senegal to DRC.”
Bradley said Phatisa often looks to bring its businesses into new markets, citing the example of Kanu Equipment, which the firm helped expand from nine to 14 countries within Africa. He explained that diversification is both a means to making portfolio companies more attractive to potential buyers and a way to mitigate currency and other risks.
“Stuff is going to happen in Africa,” Bradley said. “Therefore, if you can be in multiple jurisdictions, it just de-risks the business. If something happens in a certain country, it doesn’t affect your entire business. It’s unlikely that you are going to have 14 countries having problems.”