Botswana Public Officers Pension Fund (BPOPF) Chief Executive Officer, Boitumelo Molefe opined that if all local pension funds could buy-in on the value of establishing private equity funds, it would assist small and medium enterprises to have a strong and alternative source of funding solutions.
In an interview with Sunday Standard, Molefe demonstrated the value of private equity funds using the example of Bona Life, an indigenous insurance firm, which raised capital through selling a portion of its shares to Capital Management Botswana (CMB). Following the financial scandal that sullied the goodwill of Bramer Life, now called Bona Life, the insurance firm shopped for new investors and attracted the attention of CMB. Backed with over 10 years experience in the management of annuity books, CMB invested in Bona Life in exchange for a 25 percent ownership stake. CMB is the contracted manager of a private equity fund called the Botswana Opportunity Partnership (BOP) which had an initial investment amount of P500 million. CMB is in this case a general partner and BPOPF is the limited partner. The private equity fund was established by BPOPF and is used by CMB to invest in businesses in Botswana on its behalf. The fund makes direct investments in private businesses otherwise known as unlisted companies.
Molefe highlighted that CMB as the general partner picks companies which have potential to translate the direct investment into a profitable return. The general partner draws down on the investment amount availed by BPOPF, she explained, as and when it identifies a business to invest in. To qualify as a potential business that warrants investment, Molefe said the enterprise must demonstrate prospects of growth.
She also explained that the investment by the general partner is done with an exit plan in mind which means that the investment is done within a certain period of time, usually five to seven years, after which the company is left to run on its own.
Responding to questions on BOP sent to him in an earlier interview in February this year, Rhys Carr, a principal founder of CMB, explained that CMB generally looks to invest in businesses that are undercapitalised but well run, with good products and good growth potential, highlighting that a combination of such factors causes them to invest and help entrepreneurs reach their true potential.
“I think we were the first company to offer an alternate to bank funding for businesses in Botswana. We provided businesses with an alternative to plain vanilla overdraft funding, which at times was expensive and didn’t necessarily suit the funding needs of the particular businesses. We worked with businesses to establish what their actual needs were and then we designed a funding program that would best suit this need. We worked with the business to design what they best required. I think that this is the reason that we were able to achieve some level of success with our funding and investing structures,” Rhys expressed.
He disclosed that out of the entire investment portfolio of more than P4 billion that they have managed since establishing themselves, they have never had a single investment that lost money. He was confident that they can bring their wealth of experience and know-how to private equity which can translate to success in their role as the private equity manager.
Molefe cited that a P300 million worth private equity fund is currently going through the tendering process. According to BPOPF website, the fund requested for proposals between 8 September 2015 and 9 October 2015. The fund is expected to increase the assistance to small and medium enterprises as an alternative funding option.