Cape Town-based African Infrastructure Investment Managers (AIIM) raised $748 million for its African Infrastructure Investment Fund 4, well above the $640 million hard-cap. Another $206 million was raised in co-investments.

The previous fund in the series raised $400 million against a $750 million target, so this present oversubscription is a marked change, agrees Paul Frankish, AIIM’s head of strategic initiatives.

“This is the biggest African fundraise in the last three years. A lot of the groundwork that we did by engaging with investors in the last fund has resulted in the commitments that we’ve had in this fund. That first commitment into Africa, those engagements have taken a while to develop.”

The strategy’s focus is on thematic investing across mobility and logistics, digital infrastructure and energy transition. It has had some help from the challenges facing the wider markets.

“[Investors] have been looking at new sources of growth across their portfolio and Africa is one of those areas where growth may come from. To understand those markets, they look to people who’ve been investing in that space for a long time. AIIM has more than 20-year track record across the sectors we’re investing in,” says Frankish.

“The proof is in the pudding and the ability to show a portfolio consisting of four to six assets over the fundraising period, all of which are performing, has been a very strong validation of the strategy. We target an 18 to 20 percent return on a gross base and have been able to deliver that over the last 20 years.”

Over the years, AIIM’s eight funds have raised more than $4 billion and executed over 70 transactions across Africa. The manager has offices in Cape Town, Johannesburg, Nairobi, Lagos and Abidjan, and an AUM of $3.1 billion as well as operations in 20 countries including South Africa, Morocco, Kenya, Nigeria, Ghana, Côte d’Ivoire, Senegal and Egypt.

Wanted: growth and co-invests

More than half the capital raised comes from new investors with around 10 percent of it from African pension funds who haven’t invested with AIIM previously, according to Frankish. “We’ve seen pension markets in Africa growing significantly over the last decade and those investors are starting to get mature enough to be allocating into alternatives… This is African institutional money investing in African infrastructure, which we’ve been driving for a long, long time.”

AIIM’s strong focus on sustainability has helped on the fundraising side too, and investors include European asset managers “with an impact slant”.

Another important LPs group consists of Asian and Middle-Eastern sovereign wealth funds. “Those are allocations that haven’t come to Africa previously but are increasingly looking at how best to invest into the new market,” says Frankish.

The SWFs’ interest in African infrastructure is such that they have decreased their minimum cheque sizes to access the sector, explains Frankish. “There has been a level of strategic flexibility from the investor side, which shows that they’re really looking to put proper credence behind the strategy to invest on the continent.”

More DFIs have joined this time around too. “These are DFIs that are expanding their mandates beyond some of the traditional asset classes into infrastructure, specifically infrastructure equity. They look to come in to support a well-established manager.”

Together, the DFIs and SWFs have been instrumental in driving the sizable allocation to co-investments, says Frankish. “It’s been an important part of the overall offering to be able to show that you can deliver on co-investment.”

This move towards co-investments is a global trend, perhaps pointing to investments in African infrastructure becoming more normalised.

“Particularly for SWFs, scale is important and they have generally favoured direct strategies. For them, the ability to co-invest alongside the fund is an important part of the strategy so that’s definitely something we’ve been targeting in the types of investments we do.”

In total, around 50 percent of the raised funds are from DFIs, and 50 percent are institutional. A quarter of funds were African, 42 percent from Europe, 14 percent from North America and 17 percent from the Middle East and Asia.

Platform building

Fund IV has a 13-year term with a 5-7-year hold period and a preferred ticket size of $50 million to $100 million. This is large for Africa and, accordingly, not always possible.

“We’re looking at growth and value-add businesses. Within that strategy, we’ll look at an anchor business with an operating track record and then look to aggregate either across regions or across certain sectors within the same country. Our initial cheque size is maybe slightly smaller than [$50 million],” says Frankish.

Before investing, there is always discussions with potential buyers on exit-day to understand exactly what they’re looking for, Frankish explains. “In many instances, it is simply that scale. That allows us to aggregate and build up the platforms across the sector, across the region, and then to position it to meet the requirements for the global strategies looking to enter the market at scale.”

Fund IV is currently 60 percent committed across seven platforms, one of which is the IPP and energy trader NOA Group. Here the focus is on providing green energy to South African end-users who often have to generate power through diesel generation. Offerings include both behind-the-meter solar panels and so-called wheeling solutions where the power is produced off-site and ‘wheeled’ through the existing grid infrastructure to specified end-users.

“The models differ per market. But the thesis is the same: we’re looking to deliver directly to the high-intensity energy users who currently have to address their requirements through inefficient means,” says Frankish. This is a need that will take some time to fully meet.

AIIM is understandably optimistic about the future, and Frankish argues that theirs is a strategy that will be increasingly appreciated.

“Our investments are less geared than you see in developed markets and, historically, we haven’t been looking to multiple expansions to create value. So, the equity values we’re targeting are coming through via business growth and EBITDA growth. That’s something investors have started to look at. I think investors are starting to consider the longevity of that strategy compared to other opportunities.”

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