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Saudi-owned Africa fund hit by discord

Mar 08 2012 16:45 Reuters

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Johannesburg - Prominent African private equity firm Kingdom Zephyr is in talks with investors on the future of its $490m fund after the departure of its rainmaker forced the closure of its South African office, according to sources familiar with the matter.

The shakeup comes as competitors increasingly push into African private equity, drawn by the dynamic economic growth and lucrative deals that Kingdom Zephyr itself helped to publicise.

Owned by Saudi billionaire Prince Alwaleed bin Talal and US firm Zephyr Management, Kingdom Zephyr is negotiating with investors about how to proceed with its portfolio, according to two people familiar with the matter.

“The fund is undergoing restructuring,” Accra-based managing partner J Kofi Bucknor told Reuters, although he declined to comment further.
 
The departure of chief investment officer Panos Voutyritsas in September raised concern among some investors, according to the two people who declined to be identified because the information is not public.

The changes at Kingdom Zephyr - which still has offices in Ghana and Nigeria - come as international investors clamour for deals in Africa.

Irish rock star Bob Geldof has raised $200m for his 8 mile Africa fund, while US firm Carlyle Group last year set up shop in Lagos and Johannesburg.

Kingdom Zephyr’s office closure also illustrates some of the difficulties investors face in frontier markets, where local knowledge is critical and experienced investment professionals are not easily replaceable.

Kingdom Zephyr made several investments in high-profile African companies such as Celtel - now part of Bharti Airtel - and Ecobank Transnational.

Managing partner Bucknor is a well-known figure in African investment banking. A Columbia MBA and a veteran of Chemical Bank and Lehman Brothers, Bucknor has been a strong exponent of Africa’s growth potential.

The fund was also known for hefty returns in its early days: its internal rate of return - the common measure of investment performance in private equity - totalled 94% over three years, according to a 2007 press release.

“Key man” event
 
Reuters was unable to establish whether Voutyritsas’ departure triggered a so-called key man event, a clause to protect investors if an important member of management leaves. Typically, a fund is prevented from making new investments under the clause.

Voutyritsas told Reuters last week: “I had fundamental disagreements over business philosophy and management practices with some of the key people at Zephyr Management, and it came to the point where parting ways became inevitable.

“It did not relate to investment matters. Overall, we enjoyed a wonderful investment track record since Kingdom Zephyr’s formation. It was differences on other management matters, which invariably influenced the strategic direction. Our visions diverged.”

Neither Zephyr Management nor Kingdom Holdings responded to calls and emails seeking comment.

“They are trying to work out what they’re going to do with their existing portfolio. They do have assets in their current fund and the (limited partners) are debating amongst themselves what is the right way of handling that,” said one of the people familiar with the matter.

The fund’s investors, or limited partners, include Temasek Holdings, the Singapore sovereign wealth fund. Temasek has been pushing to take over the fund, said the other individual with knowledge of the issue.

A spokesperson for Temasek declined to comment.

Other limited partners include International Finance Corporation, a unit of the World Bank, which committed $40m to the fund in 2008.

A spokesperson said the IFC was fully committed to private equity to bring development change in Africa, but declined to comment further.

By the time he left, Voutyritsas - a former banker with Salomon Smith Barney in New York - was one of the few remaining members of the original Kingdom Zephyr team.

“I was the last one in a series of departures over the last three years, and serial departures can cause issues to any company,” Voutyritsas said.

Kingdom Zephyr’s Johannesburg office was closed and staff were let go around December, according to a third person familiar with the matter.

The firm’s website currently lists two other bankers as members of the South Africa team, although Reuters has not been able to contact either of them.

When two Reuters reporters visited the office in suburban Johannesburg late last month, it was closed during working hours and the lights were off. The company name on the wall in reception was partially taken down and four boxes were stacked against a desk.

Kingdom Zephyr has $492m of committed capital for its current fund, which was launched in 2008.

It holds about a 30% stake, worth about $55m, in Consolidated Infrastructure Group, a Johannesburg-listed supplier of electrical equipment and building materials.

It also holds stakes in north African real estate developer Mixta Africa SA and Botswana-listed consumer lender Letshego Holdings.

Its initial fund, launched in 2003, was for $123m.
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