Silk Invest plans private equity African food fund

LONDON Thu Nov 11, 2010 2:09pm GMT

LONDON (Reuters) - Specialist frontier market investment manager Silk Invest is planning to launch a private equity fund to invest in African food-related industries in markets such as Egypt, Ethiopia and Nigeria.

Daniel Broby, chief investment officer of Silk Invest, which already runs several frontier market equity and fixed-income funds, said the aim was to raise 150 million euros (127 million pounds) by the time of the fund's second close.

Broby told Reuters the fund would target companies operating in the food chain, in areas such as processing, distribution and storage, which need capital to develop.

"They are doing the right things but need development capital -- in Ethiopia you just can't borrow money from a bank," he said. The Horn of Africa nation is still one of the world's poorest countries, with nearly 10 percent of the population relying on emergency food aid last year.

The Silk Invest fund has been in development phase for a year and is currently in its first phase of fund-raising, which it aims to close by year-end. The second round will follow once the concept has been proved via early investments.

A typical investment would be about 3 million to 5 million euros for a minority stake, Broby said, adding that several suitable companies had already been identified.

The African Food Fund is intended to appeal to government institutional investors such as overseas development agencies that have the money to invest in frontier markets to aid development, but not the expertise.

Broby said that 60 percent of African GDP was agriculture based, and there is currently a land grab going on in Africa among countries that can't feed their growing populations keen to acquire arable land.

Silk Invest has built a five-strong team to identify and manage the investments, headed by Dr Wassem Kahn. He was previously at the Abu Dhabi Investment Authority and the Kuwait Investment Authority where he filled similar roles.

Broby said potential exit routes include industry sales or mechanisms known as earnings puts, where a company uses its cash flows to buy out initial capital invested in its operations as it grows.

"We also believe in the development of the capital markets in these countries so at some stage that could be another exit route," he said.

(Editing by Erica Billingham)