Wealthy US universities looking at investment strategies in Africa

Wealthy US universities to invest in Africa

America’s wealthiest universities are venturing into Africa’s fast-growing frontier markets, in search of outsized investment returns that will allow them to offer scholarships, lure star professors and fund research.

For sub-Saharan Africa, recognition from these deep-pocketed US institutions, who have often earned envy among fellow global investors for their strong returns, marks a significant shift.

University endowments in the US — permanent funds of educational institutions — pride themselves on spotting new investment opportunities early, such as venture capital, private equity and natural resources such as timber. Combined, they manage assets of at least $400bn.

A study of 831 endowments by the Commonfund Institute and the National Association of College and University Business Officers published this year showed their annual net returns in the 10 years to June 30 last year, averaged 6.2%. In the same 10-year period, returns for the US S&P 500 stock index were 5.3%.

In Africa, they are seeing many of the trends that played out in emerging markets such as China, India or Brazil — strong economic growth, an emerging middle class, greater political stability and improved government balance sheets.

These are just the attractions that US President Barack Obama highlighted on his recent trip to the continent, when he urged American and other investors to “c’mon down” to Africa. “The growth, consumer spending, improved governance and disposable wealth, they’re all positive stories,” said William McLean, who manages Northwestern University’s $7bn endowment.

His team is investing in Nigeria and Kenya among others and recently doubled its exposure to Africa. “Our motivations are making some money,” he said. “You have to look everywhere for growth.”

However, it is difficult to know exactly how many US university endowments have put money in Africa because most prefer not to discuss their investment strategy.

Wale Adeosun, founding partner at New York-based investment firm Kuramo Capital Management, said endowments’ interest in Africa began after the 2008-09 financial crisis. He estimates that 10% to 15% of these institutions are already investing in Africa, and up to 30% may be seriously looking for deals.

US endowments’ awakening appetite for Africa is another sign that the continent is shedding its past reputation for conflict, poverty and aid-dependency.

Between them, these institutions manage around $50bn. Harvard University, whose $31bn endowment is the biggest in the US, has been exploring the investment landscape in Africa, according to a banking source, who said his bank was approached by the university a few months ago. “There has been some interest. They were looking to debt instruments and private equity.”

According to Harvard’s tax filings for the year ending June 30 last year, the university had investments of about $198m in sub-Saharan Africa, but this represented just 0.5% of its total investments