Buyout Firm Vital Plans $500 Million Africa Fund as Demand Booms

Private equity firm Vital Capital Investments LP is planning a $500 million investment fund that will focus on African industries overlooked by competitors.

Vital Capital Fund II is weighing opportunities in Mozambique, Tanzania, Rwanda, Angola, Ethiopia, Uganda, Cameroon, Ghana and the Ivory Coast, managing partner Eytan Stibbe said in an interview with Bloomberg Brief Sub-Saharan Africa. The firm’s second Africa-focused fund will make as many as 20 investments in industries such as agriculture, water, education, affordable housing, healthcare and clean-energy.

“People consider those areas that we’re active in as higher risk and there are less entities involved,” Stibbe said. “It’s more difficult to attract foreign, western sources of money to these sectors to do affordable housing in rural, even urban Africa. We found that as a big need, so we decided to create Vital as a platform for Western money to be invested in Africa.”

Buyout firms raised $4.1 billion to invest in the continent in 2014, 24 percent more than a year earlier, according to Ernst & Young’s Private Equity Roundup for Africa 2015 report. David Bonderman’s TPG Capital said last week it plans to invest in healthcare, consumer and financial services businesses in Africa with Satya Capital, while Abraaj Group raised almost $1 billion for a third African fund earlier this year and said investor demand was “substantially higher.”

Vital Capital is rated among the top 10 funds for impact performance by the Global Impact Investing Rating System, which has ranked the results of 80 funds. Impact investment funds aim to generate social or environmental benefit as well as a financial return.

‘Proven Premise’

Vital Capital Fund II has a hard cap of $700 million, the ceiling beyond which no more investments will be accepted, with a first close expected by the end of this year, said David van Adelsberg, an adviser to the investment vehicle. Vital Capital is in discussion with a range of institutional investors and development finance bodies including the Africa Development Bank and the Overseas Private Investment Corp., said Stibbe.

Vital Capital closed its first fund in July 2012, having raised $350 million of its $500 million target, from almost 20 investors. “We wanted to move quickly and thought 350 was a very good base as a first fund,” Van Adelsberg said.

About 68 percent of Vital Capital Fund I has been deployed. The fund has committed to 12 projects, including $92 million to Kora Housing, which builds affordable homes in Angola.

The firm has since exited two of investments and posted an internal rate of return of more than 24 percent, Van Adelsberg said. Of the total committed capital, more than 33 percent has been distributed back to investors already, and about 44 percent of the fund’s called capital has been returned, he said.