Private Equity in Nigeria is an interesting space for any savvy investor to play in. Investors get to enjoy higher equity with less regulatory restrictions, even though the risk may be higher than buying public stocks.
So, what is Private Equity?
Private Equity is simply investing in a business that is not publicly traded on the stock exchange. In other words, you are investing your capital in private businesses for some equity.
The mindset of Investors looking to play in the private equity space is different from the mindset of those looking to trade public equity. While a public stock investor looks at the historical performance of traded stocks, and projects future price movements, a private equity investor looks at the historical performance of the individual managing that business.
To a private equity investor, personnel is more important than the commodity. And even though they would usually consider the strength of the industry and the volume of the target market, private equity investors mostly want to invest in individuals who have had business success in the past or have tremendous industry experience.
Types of Private Equity in Nigeria
Private Equity in Nigeria is usually categorized by industry. Investors prefer to focus on market clusters where they have the most experience or the most influence in order to have an advantage in growing the business and making profits.
Thus, the biggest types of private equity in Nigeria are:
- Healthcare Private Equity
- Agriculture Private Equity
- Manufacturing Private Equity
- Properties Private Equity
- Technology Private Equity
With the growth of technology startups in NIgeria, we have seen technology private equity firms springing up all over the country. This makes technology private equity one of the most capitalized in the country, with over $600 million of venture capital reportedly raised in 2019.
Most of the private equity firms in NIgeria are positioned as either venture capital firms having business relationships with several investment funds, or crowdsourced platforms leveraging technology.
Steps to Investing in Private Equity
You can invest in private equity in Nigeria in three ways:
Handing your money to private equity firms
This is usually the simplest way to invest in private equity firms in Nigeria. You simply hand your money over to a private equity company and invest in one of their advertised portfolios. The interest rates would usually hover between 10% to 20% per annum depending on the portfolio or company, but interests higher than 20% per annum would probably carry more risk.
These private Equity firms already have active portfolios of stocks, properties, or banking products where they invest their funds. So, they would usually negotiate with you concerning your risk tolerance and your expected interest rate. The investor survey would then inform their choice of portfolio for your investment.
Private Equity Firms in Nigeria
The truth is, most of the banking institutions in Nigeria offer Private Equity Investments to their high-networth customers. However, there are institutions that focus on building relationships towards finding the right investment opportunities for Private Equity Investors in Nigeria.
Here are some Private Equity Firms in Nigeria:
- Quantum Zenith Capital – Equity, Debt, Real Estate
- RMB Private Equity – Corporate & Banking Products
- Rise Capital – Stocks, Real Estate, Fixed Income
- ARM Capital Partners – Asset Management & Specialized Funds
The benefit of investing with these Private Equity Firms is that some of their investment products are insured by their insurance partners, so investors’ capital is largely safe. However, the funds are not that liquid and are mostly offered at long terms, from 6 months upwards. Investors looking to liquidate their funds earlier than the maturity date would usually incur a penalty fee, which further depreciates their interest.
Owning a Private Equity Firm
This is the route taken by most career investors. They don’t just want to invest their money in buying equity of private companies. They probably have a network of rich friends and relatives who would want to invest with them.
So, owning a private equity firm is just the same as starting an investment company, although the regulatory requirements may be a little different.
If you feel that you need company in your investment pursuits, or you want to own a company that invests in other companies, then this might be the route for you.
This kind of business thrives on industry relationships and business reputation that takes years to build. Most of the people who have built successful private equity firms in Nigeria are veterans who have spent years in the corporate world and have a large network base.
Ideally, owning a private equity firm is not for beginners.
For those willing to start from scratch, private partnerships could be the beginning of investing in private equity.
If you’re willing to go this route, you just have to know how to spot the right opportunity and build the right structure to make your investment thrive.
Most investors would prefer to just start their own business than go this route, but with the business climate in Nigeria becoming more unfavorable for startup businesses, it’s better to invest in a business that is already making headway. With just a little injection of cash and the right system in place, you could start reaping profits from the business.
To start investing in private equity via partnerships, you can either go the way of investing with other partners who are looking to invest in private partnerships, or just look to find partnership opportunities in industries you are interested in.
To do this you will need to get a team of legal and business development personnel to help give structure to the partnership. Your lawyer would be responsible for organizing the business structure and the business agreement needed to run the business smoothly, while the business development person would be responsible for approaching target businesses and pitching the mission of the partnership.
Depending on the nature of the partnership, you may need a business manager to design the right system for the business to run, if that is not already in place.
Most investors would prefer investing in a business that already has all the necessary personnel in place. In fact, it is expected that the core existing team of the business should require only a little change after the investment is made.
That is why most private equity investors consider the quality of the business team in which they are investing. If it takes too much work or restructure to get the business organized after the investment, most investors would not invest.
Except you are handing your money over to private equity firms, investing in private equity requires as much work as starting your own business.
That is why it is advisable for investors to invest in private businesses where they have sufficient interest. Apart from the right team and business structure, the interest of the investor needs to be invested in order to move the business forward.
If you don’t have the time or skill to manage people or run a full-time business, then it’s best to find a private equity firm with the right portfolio to invest in.
It is better to have a diversified portfolio of private equity investment that is bringing reasonable annual returns, than an investment business that you’re struggling to manage.