Vital is pleased to be recognized with the 2025 Real Leaders of Impact Investing award. Now in its sixth year, the list is a compilation of investors dedicated to reshaping business practices globally through impact-driven capital.
The award celebrates Vital’s commitment to transformative impact in Africa and other emerging markets, positioning our work among firms “making a tangible difference in the world by funding businesses that matter.”
View the full list here.
Vital Capital Managing Partner Nimrod Gerber recently offered his insights for a Financial Times article about the relationship between impact investing and ESG. Among other leading sustainable investors, Gerber shared his perspective on the significant untapped opportunities for impact investing across Africa.
“You’re going to have a billion new consumers very soon consuming potable water, basic healthcare, better food, infrastructure, and education,” Gerber explained. “Silicon Valley is not looking at how to solve these huge challenges in Africa. Creative, smart African entrepreneurs that live the problems are developing the solutions. It’s a winning formula.”
Read the full article here.
As we settle into 2024, we consider the outlook for private equity investment in Africa. Among the factors attracting investors to the continent are its rapidly growing population of 1.4 billion people – of which 60% are below the age of 25 – and an increasing demand for essential services such as infrastructure, agriculture, education, and healthcare.
There are rich and varied opportunities in Africa, with the promise of strong financial returns and social impact, but a key stumbling block continues to trip up General Partners and limits further investment: the failure to understand that a foreign strategy will not work here.
In an article for AltAssets, Vital Capital Managing Partner Nimrod Gerber shares his views on why Africa requires its own private equity playbook – one that accounts for the economic, legal, and cultural diversity on the continent, and involves a custom approach to greenfield opportunities, controlling stakes, and investment exits.
Read the full article, available here: https://www.altassets.net/knowledge-bank/by-pe-focus/large-buyouts/why-africa-requires-its-own-private-equity-playbook.html
By Francisco Machado, Investment Director
Until recently, Ghana was considered a macroeconomic and political model in sub-Saharan Africa; in 2019, the World Bank described it as ‘a rising growth star’[1]. However, in May 2023, the IMF signed a new bailout agreement worth $3 billion over three years. It’s a program that’s widely seen as a band-aid for a host of long-term economic challenges facing the country – a net importer – including a balance of payments deficit. The nation’s public debt is nearly as large as its annual economic output, inflation has been running at over 40% in 2023[2] and Ghana’s currency, the Cedi, has fallen by more than 45% against the dollar since January 2022[3]. The bailout will do little to address poverty, create new jobs, boost salaries or address the rising cost of living facing Ghanaians.
Ghana is not alone in facing economic headwinds and other countries on the continent face a similar fate driven by a range of factors, including the Russia-Ukraine conflict, the rising cost of food imports, a reduction in foreign direct investment and rising interest rates globally that are increasing cost of debt servicing. Kenya, East Africa’s largest economy, has recently agreed new funding amounting to around $1 billion to help relieve pressure caused by rising debt servicing and effects of drought.
One solution to help advance economies in Africa and provide some insulation from global economics might lie in the growth of local institutional investors. They are uniquely positioned to help boost industry, agriculture and overall economic development, while reducing reliance on international investment, the international currency markets and interest rate fluctuations at the same time. Research conducted by the IFC in 2022[4] highlights that “a well-functioning local institutional investor base may play a role in bolstering the economy” and “financing the ambitious development agenda ahead calls for an enhanced role for the region’s institutional investors.” Africa’s institutional investor base has become an increasingly important source of capital over the past few decades, having grown strongly and steadily accumulated assets under management. The IFC analysis found that pension fund AUM grew by an average of 65% between 2016-2020 across the seven African economies they looked at.
These investors have typically been very conservative in their investments, investing primarily in government bonds in their territory. The IFC research found that pension fund investment in “alternative assets” accounts for a very small share of assets; across five markets they found it accounted for between 0 and 2.7% of AUM. A lack of familiarity with and capacity to evaluate the associated risks, along with uncertainty over policy approaches to these assets, may be holding back allocations. But as seen with Ghana, excessive investment concentration in government bonds can carry its own risks. As a result, these investors are missing out on the opportunity to diversify and manage risk, as well as the opportunity to generate alternative sources of returns and create sustainable impact in their communities.
By diversifying their portfolios into other asset classes, including alternatives such as private equity and infrastructure, investors will mitigate against the risks associated with concentrated portfolios. Furthermore, private equity firms can be nimble and uncover opportunities that might not be immediately apparent. They can also target very specific social and environmental goals, mitigating risks for entire communities and contributing to their development, as well as creating financial returns for their underlying beneficiaries.
At Vital Capital, through our investments totaling around $300 million, we have provided 22.6 million individuals with solutions to meet their essential needs, diverted 1.04 million tons of CO2e through the use of renewable energy sources and supported 64,850 jobs and livelihoods. There is also a multiplier effect and contribution to development by stimulating further growth through the knock-on effect of investing locally directly and indirectly by creating jobs or generating local purchases. For each dollar Vital has invested in building capacity locally to stimulate local economic activity, it’s led to $2.50 of direct local purchases.
With little in the way of experience of investing in alternatives for many institutional investors in the region, the prospect may seem daunting. Some considerations to make when considering such investments include assessing alignment with investment objectives and target outcomes. This could be a return profile, types of investment, sector focus or an impact objective such as building and maintaining critical infrastructure, mitigating climate change or providing more affordable housing. When investing in impact funds, investors should look for alignment with international best practices and their impact measurement and management processes. Of course, track record is also important, both in terms of financial returns and the creation of meaningful, measurable impact.
An understanding of, and experience in, the local investment landscape is also essential. At Vital Capital, we focus on the sectors and countries we know and understand, and where we know we can make a difference – as well as returns – for investors. We also understand that a different approach might be required to the usual private equity model. For example, the normal three- to five-year investment period may not be the right time horizon for value to be created and realized.
Finally, investors should look for fund managers that are operationally minded and quick to adapt. During Covid, support for businesses in many parts of Africa was slow to materialize. As a result, otherwise viable businesses were left to fend for themselves, with many failing as a result. In contrast, we were able to step in quickly and, within 30 days, had put business continuity plans in place at all our portfolio companies. Furthermore, we put in place a $10 million direct loan facility, the Vital Impact Relief Facility, to help fundamentally sound SMEs through the immediate economic fallout from Covid.
By embracing alternative assets, local institutional asset managers across Africa can better manage risk, diversify their portfolios, and contribute to positive social, environmental and economic development within their communities. With substantial assets at their disposal, this has the potential to be transformational for countries across Africa, making them more self-reliant and insulated from the swings of macroeconomic and geopolitical events, creating more stable – and more sustainable – economies.
Institutional investors need to embrace alternatives, and alternative asset managers need to do a better job of explaining the benefits and providing relevant investment solutions that meet the needs of this investor base.
Efforts to encourage more institutional capital to be invested locally are underway. For example, the Kenya Pension Funds Investment Consortium (KEPFIC), an initiative supported by the World Bank and US Aid, has brought together the country’s leading pension funds to encourage them to increase in their allocation to alternative investments. Such initiatives help with professionalization and resourcing to support allocation to alternatives, but it’s only one part of the puzzle. This needs to be followed elsewhere and accompanied by supportive legal and regulatory frameworks.
For example, regulators might consider introducing – and enforcing, where applicable – minimum allocations to alternative assets within their portfolios to encourage diversification. Furthermore, they might follow practices in Europe and elsewhere to limit personal responsibility for trustees of pension schemes for investment decisions. Here, it is common for pension scheme rules to include exoneration and indemnity rules for trustees where losses result from properly taken actions to ensure they aren’t held personally responsible – with liability insurance also available. This could and should be replicated for trustees of pension funds across Africa.
As the amount of assets managed by institutional investors in Africa continues to grow and the market matures, the role for alternative assets within portfolio construction is becoming more important, both as a means of diversification and risk, but also to the development of economies across the continent.
A version of this article was originally published in Africa Global Funds.
[1] https://thedocs.worldbank.org/en/doc/61714f214ed04bcd6e9623ad0e215897-0400012021/related/Ghana-Rising-Accelerating-Economic-Transformation-and-Creating-Jobs.pdf
Vital Capital is pleased to be named Private Equity Manager of the Year in the 2023 Environmental Finance Sustainable Investment Awards. Environmental Finance, a key source of sustainable investment news, conducts the awards annually to honor the world’s leaders in the impact and ESG investing space.
Vital was selected for this year’s prestigious award from a group of sustainably-focused global fund managers, recognizing the firm’s excellence in maximizing investment performance and our track record of achieving social and environmental impact. The award is a testament to the Vital team’s work and collaboration with thoughtful investees, who are impactfully reallocating capital toward the world’s most underserved populations. We are honored to be among the leading firms driving transformational impact for those who need it most.
“The entire Vital team is deeply proud to be recognized as Environmental Finance’s ‘Private Equity Manager of the Year,’ and I am especially pleased by what this award signals about the impact investing industry’s maturation,” said Managing Partner Nimrod Gerber. “Since our founding in 2011, Vital has insisted on the very real opportunity to achieve more: transformational impact for people who need it most and good returns for our investors.”
Read more about why Vital was selected for this year’s award here.
Vital Capital’s Vice President of Investments, Francisco Machado, spoke to Agri Investor about the outlook for investors looking to make an impact through agriculture investments against a backdrop of increasing global food insecurity and a growing urgency to curb emissions and the environmental degradation from agriculture.
Drawing from Vital’s extensive experience in the sector, Francisco shared how investments in agriculture can act as an impact multiplier in local economies: “From an impact perspective, it meets our goal… increased availability and affordability of basic nutrition leads to improved health,” Francisco explained. “And the fact that we rely on the smallholder farmers also then taps into increased financial resilience.”
As part of our focus on agriculture we aim not only to produce positive outcomes for the environment, but also to prioritize improvements in health and incomes for the farmers and local communities we work with. This follows our underlying investment thesis of maximizing impact for every dollar invested.
Read the full article to learn more about different approaches to cultivating impact in agriculture: https://www.agriinvestor.com/cultivating-impact-in-agriculture/
As we enter a new year that will be critical in the fight against climate change, Vital Capital’s Head of ESG & Impact, Tamar Pashtan, shares her views on why investors must not underperform on impact with Environmental Finance. The climate emergency is having a disproportionate effect on emerging economies so, as climate investment reaches record levels, it’s imperative that capital is directed towards the most impactful solutions and most underserved communities to ensure a just climate transition.
Our experience of investing in businesses and solutions that create transformational impact and tackle some of the most pressing challenges facing the planet, has taught us that intentionality from the outset is key. The article reveals how our impact rating tool, the Vital Impact Diamond, enables us to “look for transformational outcomes: big leaps forward, not small steps” and calls on investors to embed impact goals in their decision-making processes.
The article is available here.
Vital Capital Managing Partner Nimrod Gerber recently shared insights on how to make successful – and impactful – investments in Africa with ImpactAlpha. The article, “Three lessons impact investors can offer venture capitalists looking for deals in Africa,” looks at the opportunity for the influx of VC funding into the continent, which topped $5.2 billion in 2021, to drive social, environmental and economic progress.
Based on Vital’s deep experience of building scalable businesses that transform lives across emerging markets, Gerber offers three pieces of advice to newer investors in the region: “First, ask who will really benefit from an investment. Second, consider the investment’s potential negative impacts. And third, question whether the problem can truly be leap-frogged.”
The article is available to subscribers of ImpactAlpha, here.
Vital Capital’s Head of ESG & Impact Tamar Pashtan recently joined a panel of impact investing leaders to discuss one of the industry’s most pressing topics: alignment in impact performance reporting. The discussion, hosted by impact verification firm BlueMark, was based on research from the firm’s latest report, ‘Raising the Bar: Aligning on the Key Elements of Impact Performance Reporting.’
High-quality, standardized impact performance reporting is critical for ensuring industry integrity. However, the lack of widely-accepted standards or guidelines for reporting on impact performance makes it difficult to meaningfully analyze and compare impact results.
BlueMark’s analysis of 31 GP impact reports and interviews with 57 diverse industry stakeholders found that impact objectives vary considerably in their specificity; reported impact results are often cherry-picked; impact reports are rarely forthcoming about risks or failures; and reporters often overlook the stakeholder perspective.
The panel, moderated by BlueMark Managing Director Sarah Gelfand, featured Tamar; Fran Seegull, President of the U.S. Impact Investing Alliance and Executive Director of the Tipping Point Fund on Impact Investing; Elizabeth Seeger, Managing Director, Sustainable Investing at KKR; and Bhavika Vyas, Managing Director at StepStone Group. They delved into the current state of impact performance reporting among GPs and fund managers, best practices, and potential pathways to improve the quality and usefulness of impact reports going forward.
Listen to the full discussion here.
Vital Capital Managing Partner Nimrod Gerber recently spoke to Infrastructure Investor about the need to build and improve basic infrastructure in emerging markets and the role private capital can play in spurring that development.
Highlighting the inextricable link between economic development and infrastructure, Gerber commented: “Businesses that provide basic goods and services rely on basic infrastructure – roads, ports, affordable and reliable energy, water, healthcare and education, telecommunications and the internet. If you’re an impact investor and you look at emerging markets, you have to take infrastructure into account.”
The article is available to subscribers of Infrastructure Investor, here.
