As the phrase goes “anyone can invest money, but few know how to get it back.” After the deal is closed, there is still portfolio management, especially when investing in small and medium enterprises (SMEs) from start to exit. A good investor that has a track record of successful exits should typically attract more capital and provide greater value to limited partners.
In private equity, the exit stage reflects the performance of the fund and its ability to provide a real return to shareholders. Governments should know that an exit from their country is an indicator that their country is conducive to sustainable investing as this attracts the interest of new investors compared to global investment roadshows.
However, there is a growing number of private equity firms not providing the expected exit returns expected by limited partners. The illiquid nature of the alternative sector is therefore providing the same risk volatility typically seen in the liquid markets. This disparity is not a result of the investment landscape in Africa, but rather the quality of the general partners in the specific private equity firms. Private equity firms that do not have the ability to diversify the risk of the portfolio are less likely to provide a return to limited partners. The most important part of portfolio risk diversification is private debt, which typically offers stable returns and easy exit.