AIG African Infrastructure Fund

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AIG African Infrastructure Fund
Private Equity Interest In African Infrastructure
Investments Thomas Gibian
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What Have We Learned?

• Can a large infrastructure fund find deals in
  Africa?
• Sector agnostics
• Define your thesis, your niche and your mission
• Without deviating from your purpose, recognize
  value of flexibility
• Proceed as the way opens
• Never forget whose money it is

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Pipeline is Driven by Positive Factors

• Telecom
• Deregulation
• Proven business model for emerging markets GSM
  companies
• Need for private equity in cooperation with
  juniors

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AIG African Infrastructure Fund

• African Context for Telecom
• Post paid revenue model
• Proven demand niche markets
• Standard technology applications
• Local management
• Valuations more stable than ROW

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AIG African Infrastructure Fund

• Natural Resources
• Changing regulations
• Improving host country environments
• Need for private equity in cooperation with
  juniors

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AIG African Infrastructure Fund

• African Context for Natural Resources
• Historically competitive businesses
• Significant technical information available
• Financial community supports
• Hard currency revenues/soft currency costs

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AIG African Infrastructure Fund

• Natural resources require dedicated
  infrastructure
• Shipping and transport
• Servicing and specialized services
• Highly structured investment
• Throughput contacts
• Adequate credit to support leverage
• Buybacks and put options

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Limited Portfolio Diversification Driven by
Sectoral Weaknesses

• Electricity/Water/Roads/Bridges
• Political risks, especially tariff setting
• Difficulty in achieving scale
• Lack of exit
• Privatization woes
• Currency risks

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The Funds Experience

• Limited competition/Co-investment cooperation
• Highly structured investments
• Significant commitments occur prior to
  investments
• Intense post-investment involvement to manage
  risks/improve returns

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2000 Present Taking Stock

• The energy business is strong
• Communications is a growth business throughout
  Africa
• Supply/demand for funds is wholly in our favor
• Suitable investments are lumpy rather than spread
  evenly across sectors

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Reassessing Private Equity

• Worldwide, the private equity market is in deep
  retrenchment
• Return expectations have been adjusted downward
• IPO market non-existent
• Market multiples contracted
• Industry consolidation on hold
• Public equity and alternate investment return
  expectations have declined

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AIG African Infrastructure Fund

• How should changing market conditions and the
  Funds own African experience inform/guide our
  investment strategy?

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The Funds Going-in Thesis

• We are market contrarians
• We must accept manageable risks to achieve
  superior returns
• Emerging market investors are underexposed to
  Africa due to a lack of
• Product
• Information
• Liquidity

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The Funds Going-in Thesis Contd.

• Therefore our focus will be on
• Infrastructure, broadly defined
• Investments where there are market comparables
  outside of Africa
• Companies, not asset-based projects
• Transparency/corporate governance which add value
  and enhance exit value
• Investment horizons of 4-6 years

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The Funds Going-in Thesis Contd.

• Identifying, analyzing, taking and managing
  equity risks requires specialized African
  knowledge and application of proven investment
  criteria
• Our Investment Committee process is strengthened
  by being open, debate driven and informed by
  multiple, and on occasion, conflicting views

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The Funds Niche

• Large transactions
• Pan African
• Building companies to become deserving of
  investor interest
• Focus on liquidity

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The Funds Mission

• Create African focused, international style
  financial products
• Focus on market awareness/liquidity
• Investor demonstration-effect
• Profitability

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