Economy
Understanding Private Equity and Alternative Investments
By FBNQuest
Although there are a variety of options for raising capital and attracting investors, equity is one of the two most sought-after options.
It allows a company to give a share of ownership of its business to an investor in expectation of a return as the business grows. Unlike public equity (stock market) with ownership of shares in a public company, private equity (PE) simply means ownership of shares in a private company.
Private equity is a type of capital investment (asset or security) made to (target) companies that are not publicly traded on a stock exchange.
As an alternative form of private financing, private equity allows investors directly invest in companies through which such investors gain an ownership stake in the companies. Investors seek PE funds to earn returns that are considered to be better than those from the public equity markets.
To avoid debt, companies can sell their stocks to raise money that can be used to fund new technology, make acquisitions, expand working capital, and fund projects geared towards business growth.
Usually, the financial information on stocks of such a company is not disclosed to the public, rather, an investor can only speculate on the asset worth of the intending company.
Private equity involves three parties: the investors who supply the capital, the private equity firm that manages and invests the money on behalf of the investor via a private equity fund, and the company (known as Portfolio Company) that the private equity firm invests in.
A private equity firm’s ultimate goal is to sell or exit portfolio companies to deliver superior returns (above the benchmark return also referred to as Internal Rate of Return (IRR) to earn carried interests).
The most widely adopted investment strategies by PE investments are leveraged buyouts (LBOs) and venture capital (VC) investments.
In LBOs, a PE firm will raise debt from institutional investors on the back of a target company and assume control of the target company, while using the cash flows of the target company to pay the acquisition capital. Whereas, the VC makes investment in young and fast-growing companies in an industry that has the potential for exponential growth while adding value to the firm being taken up. In some cases, PE firms grow and improve a middle-market company with the aim to sell or exit to a mature company within a specified period.
Generally, private equity firms are active investors who are involved in the board level and monitor the financial and operating performance of portfolio companies.
However, some private equity firms are involved in the day-to-day operations of portfolio companies and may take C-level positions such as CEO, CFO, CIO and COO to ensure that value creation initiatives are implemented in the portfolio companies to ensure that increase in revenue, improvement of operational efficiency and corporate governance.
A private equity fund is typically opened to institutional and accredited (individual or business entity) investors who invest large sums of money for a long period.
Institutional investors are companies or organisations like endowment funds, commercial banks, hedge funds, mutual fund managers, and insurance companies that invest money on behalf of other people.
Accredited investors on the other hand are individuals or a business entity that invest based on their income, net worth, asset size, governance status, or professional experience. The reason is that private equity as an asset class is generally illiquid and has a long lock-up period and only ideal for investors with a large asset size (or AuM).
Other alternative investments include infrastructure assets, art, antique furniture, automobiles, real estate, commodities, exchange-traded funds, and hedge funds.
The market performance of traditional investments and alternative investments are independent of each other, hence, the inclusion of alternative investments in a portfolio can reduce its risk through diversification.
Before the coronavirus outbreak, PE investments in Nigeria have been flourishing and as a result, in 2019, Nigeria was described by the African Private Equity and Venture Capital Association (AVCA) as one of the most attractive destinations for PE investments. Between January and February 2019, PE in Nigeria recorded investments worth N277.64 billion ($767 million), an improvement of 345 per cent compared to N62.37 billion ($172 million) worth of deals closed during the corresponding period in 2018.
The deals within the first two months of 2019 included the 100 per cent acquisition of Chi Ltd by Coca-Cola Company for the sum of $500 million, which accounted for 65 per cent of the total private equity investments within that period.
Other notable deals included Access Bank Plc’s acquisition of Diamond Bank Plc, the Partech- led Series A funding of Kudi, a financial services provider, and the acquisition of Wakanow, a travel agency, by the Carlyle Group valued at $40 million, to mention a few.
Why invest in private equity?
Private equity firms have grown over the years to become attractive investment vehicles for wealthy individuals and institutions who manage large pools of capital.
PE often guarantees better returns compared to other investments, with some private equity managers outperforming the public markets.
To diversify holdings, investors turn to private equity for higher returns than do public market. Specifically, such investments are for investors who can afford to have capital locked up for long periods.
Investors in private equity funds are called limited partners. As a limited partner, you get a return on your investment when the private equity firm sells the company it purchases while the private equity firm (also called general partners) takes some percentage as profit.
In Nigeria, different PE firms like FBNQuest Funds have their specific deal sizes, investment horizons, sector focus, fundraising timelines, and exit strategies.
As one of the leading alternative investments managers in Nigeria, FBNQuest Funds has been in operations for over 17 years and has invested in over 70 private companies through direct investing and their expertise and exposure to PE and VC Funds. Domiciled in Nigeria, the firm has investments in companies in Nigeria and other countries within the Sub-Saharan Africa region.
By Adedapo Adesanya
Nigeria’s maiden shipment under the African Continental Free Trade Area (AfCFTA) has successfully arrived at the Mombasa Port in Kenya.
According to the Nigeria AfCFTA Coordination Office in a statement, the development marks a historic moment for Africa’s trade landscape.
The Senior Trade Expert at the Nigeria AfCFTA Coordination Office, Mr Olusegun Olutayo, said in line with its mandate under the leadership of the National Coordinator, Mr Olusegun Awolowo, the office had coordinated the landmark event.
He said the achievement marked a significant milestone for Nigeria in realising the vision of increased intra-African trade and economic integration championed by the agreement in line with the decision of the AU Assembly at the 31st Ordinary Session of the Assembly.
“In times of escalating geopolitical tension and looming geo-economic fragmentation, AfCFTA presents a perfect opportunity for Africa to leverage trade as a strategic instrument for enhanced market access among state parties.
“This is a historic moment, a realisation of the vision of our continent’s founding fathers and mothers.”
He also said the first consignment which was a synthetic filaments product of Nigeria’s Lucky Fibres Limited (Lush), a subsidiary of the Tolaram Group, was exported under AfCFTA preferential terms.
Mr Olutayo lauded the bold economic reforms of President Bola Tinubu, emphasising their catalytic role in enabling the country’s active participation in AfCFTA, fostering continental economic integration and industrialisation goals.
He also commended the seamless cooperation and commitment from Kenyan authorities, which exemplifies the true spirit of AfCFTA.
He acknowledged the pivotal leadership role of the AfCFTA Secretariat in fostering the success and emphasised the collaborative efforts of the Kenya AfCFTA Implementation Committee and the Kenya Revenue Authority (Customs).
According to him, the shipment, exported under AfCFTA preferential trade terms, underscores partnership, shared vision, the agreement’s potential to transform Africa’s economic landscape and pave the way for a new era of trade-driven prosperity.
The AfCFTA seeks to create a single market across Africa by reducing barriers to trade, investment, and labour.
The agreement’s goal is to increase socioeconomic development, reduce poverty, and make Africa more competitive globally.
On March 21, 2018, the AfCFTA agreement was adopted and opened for signature in Kigali, Rwanda. The agreement entered into force on May 30, 2019 and officially commenced on January 2021
Former President Muhammadu Buhari established the National Action Committee on AfCFTA (NAC) in December 2019.
By Adedapo Adesanya
The Nigerian Securities and Exchange Commission (SEC) has fixed January 31 as deadline for all Capital Market Operators (CMOs) to renew their operating licence.
In a circular to the operators on Sunday, the apex regulatory agency in the country’s capital market said the annual registration renewal would last between January 1 and 31, 2025.
SEC said the annual registration renewal enforcement for CMOs was aimed at ensuring that only “fit and proper” persons operate in the capital market, warning that CMOs without valid registration will be penalised and may be excluded from capital market activities.
”This is to inform all CMOs and the general public that the annual renewal of registration of CMOs for the year 2025 will commence from January 01.
“All CMOs applying for renewal are required to include their 2025 annual subscription receipt from their respective trade groups as part of their application.
“In line with the commission’s Rules & Regulations, all CMOs are to complete the process of renewal of registration for 2025 on or before January 31 via registration renewal portal at www.eportal.sec.gov.ng,” it said.
The commission added that CMOs desiring to make enquiries or get support to complete the process should contact [email protected].
The regulator said it had in 2021 re-introduced periodic registration renewal by CMOs to create a reliable active operators’ data bank in the country’s capital market.
It said the renewal arrangement aimed at updating operators information on capital market for official use by local and foreign investors, other regulatory agencies and the public.
The agency added that the renewals would drastically reduce incidences of unethical practices by CMOs which may affect investors’ confidence and impact the capital market negatively, noting that the exercise will strengthen supervision and monitoring of CMOs by the commission.
By Adedapo Adesanya
The third trading week of 2025 ended on a positive note at the NASD Over-the-Counter (OTC) Securities Exchange, with seven equities on the platform inspiring a 1.24 per cent growth.
Consequently, the market capitalisation of the bourse increased by N21.56 billion during the five-day trading week to N1.075 trillion from the N1.053 trillion quoted in the preceding week (Week 2) as the NASD Unlisted Security Index (NSI) expanded by 37.98 points to 3,111.91 points from the 3,073.93 points it ended in the preceding week.
In the period under review, the volume of transactions went down by 42.1 per cent to 9.45 million units from the 16.30 million units in the previous week, as the value of trades declined by 53.1 per cent to N48.4 million from the N104.11 million, with these transactions completed in 122 deals involving 15 different stocks.
Industrial and General Insurance (IGI) Plc gained 50 per cent in the week to close at 36 Kobo per share versus 34 Kobo per share, Mixta Real Estate Plc increased by 20 per cent to end at N2.58 per unit compared with the previous week’s N2.15 per unit, and Okitipupa Plc rose by 10 per cent to N39.59 per share from N35.99 per share.
Further, UBN Property Plc grew by 10 per cent to N2.20 per unit from N2.02 per unit, Newrest Asl Plc jumped by 9.9 per cent to N31.38 per share from N28.53 per share, FrieslandCampina Wamco Plc surged by 3.7 per cent to N39.65 per unit from N38.22 per unit, and 11 Plc advanced by 0.3 per cent to N256.00 per share from N255.31 per share.
FrieslandCampina Wamco Plc topped the activity chart last week by value with with N0.030 billion, 11 Plc recorded N0.009 billion, Central Security Clearing System (CSCS) Plc raked in N0.004 billion, IGI Plc followed with N0.002 billion, and Geo-Fluids Plc recorded N0.002 billion.
However, IGI Plc was the most traded instrument by volume with 7.5 million units, FrieslandCampina Wamco Plc transacted 0.77 million units, UBN Property Plc recorded 0.38 million, Geo-Fluids Plc traded 0.37 million units, and CSCS Plc posted 0.16 million units.
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