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
The duo of MRS Oil and FrieslandCampina Wamco Nigeria Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 0.68 per cent on Friday, June 5.
MRS Plc lost N19.00 during the session to sell at N171.00 per share compared with Thursday’s value of N190.00 per share, and FrieslandCampina Wamco Nigeria Plc depreciated by N8.70 to finish at N181.68 per unit compared with the preceding session’s N190.38 per unit.
As a result, the market capitalisation further lost N22.59 billion to close at N2.607 trillion versus the N2.630 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropped 37.76 points to settle at 4,358.32 points, in contrast to the previous day’s 4,396.08 points.
The alternative stock market closed the last trading day of this week with a price gainer, Central Securities Clearing System (CSCS) Plc, which gained 6 Kobo to quote at N78.40 per share compared with the preceding session’s N78.34 per share. However, it could not prevent the market from going down at the close of business.
Yesterday, the volume of securities bought and sold by investors went down by 50.0 per cent to 140,345 units from the preceding day’s 280,714 units, the value of stocks decreased by 16.5 per cent to N17.9 million from the previous session’s N21.5 million, and the number of deals carried out by market participants fell by 35.7 per cent to 27 deals from the 42 deals recorded on Thursday.
When trading activities closed for the day, Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 64.7 million units traded for N4.4 billion.
GNI Plc also ended the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units transacted for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
By Dipo Olowookere
Renewed interest in financial stocks and others lifted the Nigerian Exchange (NGX) Limited by 0.15 per cent on Friday.
Customs Street closed higher yesterday despite the 1.37 per cent loss recorded by the consumer goods sector as a result of profit-taking.
This was offset by gains in the other key sectors of the local bourse, as the insurance counter chalked up 1,14 per cent. The banking space appreciated by 0.90 per cent, the industrial goods segment grew by 0.46 per cent, and the energy sector expanded by 0.01 per cent.
Consequently, the All-Share Index (ASI) went up by 366.00 points to 242,593.31 points from 242,227.31 points, and the market capitalisation gained N235 billion to close at N155.594 trillion compared with the previous day’s N155.359 trillion.
The trio of International Energy Insurance, Abbey Mortgage Bank, and DAAR Communications improved by 10.00 per cent each yesterday to N7.26, N9.35, and N1.98, respectively, while Zichis advanced by 9.39 per cent to N32.38, with Sovereign Trust Insurance up by 8.70 per cent to N2.50.
On the flip side, Academy Press lost 9.84 per cent to quote at N8.25, University Press depreciated by 9.73 per cent to N5.10, Africa Prudential dipped by 2.63 per cent to N12.95, Chams crumbled by 2.44 per cent to N4.00, and International Breweries slipped by 1.59 per cent to N12.35.
Business Post reports that the market breadth index was positive during the session after recording 37 appreciating equities and 14 depreciating equities, implying strong investor sentiment.
Abbey Mortgage Bank led the activity chart with a turnover of 164.1 million units worth N1.5 billion, Ellah Lakes sold 76.7 million units for N767.2 million, Access Holdings transacted 44.8 million units valued at N1.1 billion, Linkage Assurance exchanged 23.0 million units worth N41.2 million, and The Initiates traded 20.2 million units for N562.1 million.
At the close of trades, market participants transacted 608.5 million units worth N32.0 billion in 53,826 deals versus the 588.5 million units valued at N27.9 billion executed in 57,352 deals in the previous session. This showed that the number of deals eased by 6.15 per cent, the volume of transactions rose by 3.40 per cent, and the value of transactions soared by 14.70 per cent.
By Adedapo Adesanya
The Naira further depreciated against the United States Dollar by N3.46 or 0.25 per cent to N1,362.21/$1 from N1,358.75/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, June 5.
However, it appreciated against the Pound Sterling in the same market window during the session by N4.47 to trade at N1,823.59/£1 compared with the previous day’s N1,828.06/£1, and gained N7.00 against the Euro to sell at N1,574.58/€1, in contrast to Thursday’s closing price of N1,581.58/€1.
For another trading session, the Nigerian Naira maintained stability against the Dollar in the parallel market and the GTBank forex counter on Friday at N1,375/$1 and N1,372/$1, respectively.
The Naira is expected to remain strong in the near term, backed by a rise in external reserves, which are nearing $50 billion, enhancing analysts’ confidence about its outlook in the second half of 2026.
Heightened global uncertainty has reduced the incentive for importers and corporates to demand FX, as cautious trade weighs on import needs. Analysts estimate a $40 billion net FX position for the year, a projection anchored in oil windfall gains.
As for the cryptocurrency market, prices remained depressed following a strong US jobs report that spurred markets to price in higher-for-longer interest rates, sending Treasury yields and the dollar up while hammering stocks, especially AI-related names. Crypto markets saw heavy leverage washouts with about $1.6 billion in positions liquidated over 24 hours.
Ethereum (ETH) gave up 4.9 per cent to trade at $1,584.68, Solana (SOL) fell by 3.3 per cent to $63.22, Bitcoin (BTC) crashed by 1.9 per cent to $61,333.23, Dogecoin (DOGE) slipped by 1.8 per cent to $0.0821, and Ripple (XRP) moderated by 1.8 per cent to $1.09.
Further, TRON (TRX) dropped 1.6 per cent to sell at $0.3197, Binance Coin (BNB) slumped by 1.0 per cent to $581.18, and Cardano (ADA) declined by 0.4 per cent to $0.1589, while the US Dollar Tether (USDT) gained 0.07 to sell at $0.9997, and US Dollar Coin (USDC) closed flat at $0.9998.
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