Anyone interested in Starting a hedge fund in Africa
The hedge fund industry in Africa is relatively small but growing, reflecting the region's broader financial market development. While South Africa is the clear leader in terms of hedge fund activity, other countries like Nigeria, Kenya, and Mauritius are beginning to explore hedge fund markets. Setting up a hedge fund in Africa could bring great returns despite the risks. Just wanted to see if anyone would up for it?
People have been saying stuff like this for well over a decade and few if any have been proven right... The governments are corrupt and incompetent beyond belief, the infrastructure and access to capital markets is dogshit, the talent is near non-existent, and the execution stress vs returns ratio to actually make it worth it in comparison to just setting up in a developed country has consistently been juice not worth the effort to squeeze.
South Africa was the most advanced/sophisticated country on the continent for a while but given the politicians they're electing and what they're doing to the Boers, they're rapidly headed in the direction of Zimbabwe.
Totally agree! We made a lot of the same points - I didn’t see your comment until after I posted mine
You're right about everything except talent; on par with any First World country in terms of FO finance roles
just... lol
And I bet Blackstone hires their entire next ASO class out of Sudan 😂
Survivorship bias precisely because many of best people from Sudan have a worthless currency that makes them too poor to afford application fees to the schools Blackstone hires from—not because their academic ability & job performance will be any different if actually given the opportunity. Be humble to acknowledge where there are gaps in your perception of things you're not intimately familiar enough with; it's occasionally wrong perception of niche foreign realities that leads to failure of some investment strategies in frontier markets
I am American, but my dad is South African. I still have family there and even lived and studied there for half a year during undergrad. I’m by no means an expert on the country of South Africa or the continent (which is so geographically vast and ethno-linguistically, culturally, and geopolitically diverse its actually kind of a disservice to group as one entity, outside of it being convenient to refer to it as a continent - definitely going to be hypocritical here), but I think it’s fair to say I’m pretty well connected to it (as much as a foreigner can be).
All of that aside, my take is that the hedge fund industry hasn’t boomed on the continent yet because the financial markets in a lot of the major countries lack the liquidity, regulatory frameworks, and capital market infrastructure to facilitate meaningfully consistent returns (which can also be hedged effectively). The risks are so large. For one, people don’t like to admit this because it’s kinda taboo to say out loud in our PC world, but corruption (both political and corporate) is still a huge problem in a lot of more developed African nations.
For better or worse, EM strategies outside of Asia have not really caught on and are constantly facing outflows. So, these prospective hedge funds probably aren’t going to generate an edge by being in say South Africa or Nigeria because they won’t be investing in South African and Nigerian companies if they want to generate attractive risk-adjusted returns.
Final point: most wealthy people I’ve met in South Africa (can’t speak for other countries on the continent but wouldn’t be surprised if it’s a similar story) are actually trying to move money out of the country for a number of reasons, but one of the main ones is diversification of assets and hedging currency risk. Thus, the appeal of overseas hedge funds (or any overseas investment opportunities for that matter) are naturally going to be greater for those that can afford to invest.
Grandparents were high level diplomats from a South Asian country as well, and I got to live in Nigeria for about a year.
There is no region of the world, barring the worst parts of the subcontinent (India, Pakistan, Bangadesh) that are remotely as bad as what you see in the vast majority of sub-saharan africa. Some of these nations, like CAR and the DRC, are truly forskaken places. Sudan, can be argued to be the single worst nation in aggregate history if you were to map it on a graph over the past 70 years. People here talking about capital markets, Hedge Funds, without even realizing the sheer lack of infrastructure (physical, digital, all forms of it) and capital markets+consequent regulatory apparatuses, which would make running any type of asset allocator feasible.
Perhaps the Mayflower Americans aren't aware, but the vast majority of global south elites are moving a sizeable amount of their assets into western jurisdictions, or into western accessible but opaque tax shelters (St Kitts, Caymans, UAE, etc..). If you're from a country with a shady legal apparatus, you need to move a non significant portion of your wealth out, just for security and safety purposes, let alone diversification, higher returns, or anything else. If the ones on the ground aren't confident in the regulatory and societal future of a nation, why should some random western kid be?
The sheer amount of Naive people you meet sometimes smh.
Totally agree! Always look at what locals with substantial wealth are doing before assuming lack of capital markets infrastructure is down to naivety of foreigners and their misunderstood allocation of capital. I used to think it was an ignorance problem as well. Then, I actually spent significant time in 🇿🇦 and saw first hand why hedge funds haven’t boomed on the continent. There are a lot of South Africans working on Wall Street. It’s worth considering that none of them have taken their expertise to move back home and build a fund with much less competition than they face in NY and throughout the rest of the U.S. It’s simply a bad risk-adjusted bet.
Sad yet harsh truth. One can hope for a better future, but a good starting point to getting there is by acknowledging present challenges, not ignoring unsavory facts because they don’t fit your narrative/world-view.
I disagree. I recently opened a fund that looks for equities specifically in places such as Africa and China, which have long been considered cursed. The thing is the lack of capital interest in these markets can lead to some stupidly cheap valuations. Sometimes you find companies that have been CFO positive for 10 years, pays a dividend, and trades at their cash balance.
Everyone is moving to America because they’re scared. Do you want to follow the herd and buy American equities right now at a 40 P/E at the height of the bull market? What about in a political environment where Trump wants to weaken the dollar significantly to boost American trade; don’t you want to own some companies that operate in other currencies? There’s also a difference between a country like the DRC and Morocco.
Of course no one is going to want to go invest in some obscure markets when US equities are ripping, but if you made money because your stock price appreciated but earnings didn’t at some point the markets going to correct.
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In a sense corruption is the source of opportunity in this part of the world. All the commodity trading firms are very active in these countries and it's because they have access to high level officials and can bribe them to make deals. Most of these countries have commodity based economies that make it easier for both dictators and elected leaders to amass wealth. So there is opportunity but not really one a typical HF analyst can (or would want to) do anything with.
Hell to the yeah.
Actually quite an interesting discussion - while I can't shed light on Africa, maybe can talk a bit about Asia/Southeast Asia (SEA) to draw an analogy and how I think about it. I am Asian and Asia-based, and this comes from personal observations as well as what people who built their careers in this market think about it. Obviously anecdotal and a personal view, but the thing why emerging markets (or however you classify them) just don't work in the near term is for very structural reasons.
Political instability, cultural, industry (I mean some ASEAN countries are literally run by tourism/agriculture/low-value industries...) etc. result in capital markets in this side of the world being nowhere as developed as in the Western world. The risk of people being corrupt, fraud, established firms all having government ties etc. and it's just a few dominant players in every country all make the ASEAN growth story hard to materialise. Westerners tend to see SEA as a homogenous growth story but it's far from being the case. Even if the countries are experiencing economic growth, it's not being reflected in the financial markets. Still relatively low market caps, low liquidity/daily volumes etc compared to US countries.
These are just some reasons I hear for the lesser allocation towards Asia, and the hedge fund or AM scene here is a stark contrast from the sheer quantity and volume of shops in Western countries. And despite all these, the Asian equity markets have been growing market caps at compounded >10% CAGR...
Sure you have HK and JP (not going to talk about Korea because it's not in the same field), but frankly those markets still operate very differently compared to your US or London exchanges.
Asia has been chugging away for the past few decades, and that's still the way it's been, with many still not planning to set up shop from political risk and a general lack of opportunities - finance in Asia is genuinely not that developed too. The talent base, the culture etc. does not prioritise or glamourises finance for people to chase after too. You hear of doctor/lawyer/teacher, but does any kid aspire to be a banker since they were a kid? Not to mention most wealth is concentrated among those in families that started with a more "traditional" manufacturing/industrial/commodities player, and Asset Management/Wealth Preservation is a greater priority than wealth preservation.
All in all, many reasons underpin Asia's relative lack of success to the Western countries. To offer some perspective too, when one thinks of Africa, what do they think of? I don't want to sound like a stereotypical cunt, but for most people, the association with malnourished, corruption, XXX issues tend to crop up enough to smear the attractiveness of the growth factor. With there already being significant inertia in markets like Asia and SEA countries (which I have to say even with corruption and mismanagement at many levels, is still doing miles better than Africa), why take an even greater risk to be in Africa?
Decades later when things are more set up/there's better infrastructure in place, then perhaps the narrative will shift.
I always thought ASEAN countries, and especially China, were more focused on building a commodities based or Industrial economy as opposed to a financial economy? Agree with your view, but unsure if it's even a bad thing to begin with. Steering a national economy through primary and industrial sectors isn't the worst idea in the world.
Never meant it in a "bad" way, that's just how countries here develop. China was a low-cost manufacturing base for the longest time too. I meant it from a finance aspect/public equity perspective. It's relatively unsexy and it just doesn't have the same liquidity and dynamicness of the Western markets. The main teams trade TMT/Consumer/Industrials/Financials in Asia, and the first 2 are concentrated in China/HK/Korea/Japan. For financials, most of the larger players are in the more developed countries too. It's just not the kind of market that can support many hedge funds (especially those of scale too).
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