Fund Manager Bias in Africa: It is a matter of Black and White

Dear Africa interested individuals:

                                                                 Gradually it is becoming more evident that human prejudices that have existed since time immemorial are also impacting the way fund managers make decisions in Africa.

The first angle I will look at is the demographic composition of staff of hedge funds that invest in Africa.  I have looked at Brazilian, Chinese, Eastern Europe, Asian, South East Asia, Latin American, American, Middle East and African funds.  The funds whose investment staffing is least similar in makeup to the region of portfolio inflows is Africa. People of European and American origins dominate African and frontier market funds.  This staffing domination is not seen anywhere close to the extent it is in funds invested in non African markets. Why are funds more open to talent from regions of investment focus except when it is Sub-Saharan Africa?

The matter is further laid bare when South Africa domiciled African funds are removed from the equation.  These South African funds are DOMINATED by white South Africans and some Europeans.  Black Africans are few or in many cases non existent. Check out Sanlam, Old Mutual, African Alliance, Coronation and Allan Gray to mention a few.

Funds investing in African markets are continually springing up with the underlying investment staff representation looking nothing like the region of investment focus. This bias is so glaring in the case of funds with significant exposure to Africa. When MENA comes into the picture, representation suddenly picks up significantly with staffing favoring people with middle eastern and north African origin.  Black Africa continues to be 'sent to coventry. '  While today's figures are in the single digits, it was much worse three years ago.  Kudos to funds like Bellevue Asset Management and Robeco who have specifically in recent years sought out people of black African origin for their Africa funds. Let's look at the 2016 prejudice in investing...

Egypt has devalued it's currency four times and it's market is now up 13% in 2016, the percentage devaluation is less than 45%. Nigeria has devalued by about 80% since the beginning of last year. Inflation in Egypt is 14% and Nigeria 16.5%. Tourism (major foreign currency earner) has taken a major hit in Egypt. Oil earnings (major foreign currency earner) has taken a major hit in Nigeria.  Despite all this, the EGX30 is in double-digit positive territory while Nigeria is in single digit negative territory year to date.

There are three major frontier markets in Africa: Nigeria, Kenya and Morocco.  The two former are in negative territory so far in 2016 while the latter is in positive territory despite the widely acknowledged view that the former two hold more investment promise. More money is clearly going into non-black Africa and the reasons are more than just academic in my opinion.  Human prejudices have apparently broken through another ceiling. The Tunisian market is also up despite the huge tourism hit to its economy courtesy of terrorist attacks on tourists.

Out of the five major portfolio investment markets in Africa: South Africa, Egypt, Nigeria, Kenya and Morocco, only Nigeria and Kenya are in negative territory so far in 2016.  Yes, there are official reasons you and I can deduce for this.  These reasons are not enough in my opinion to neutralize prejudice.  Every country in Africa has had its very fair share of economic difficulties in recent times.  Major Black Africa stock market destinations are getting some level of investment scorn that belies their widely acknowledged favorite potential portfolio investment destination.  Some will say South Africa has a majority black population as a rebuttal to my point.  These black South Africans do not control the economy or the financial industry and likely never will.

Many portfolio managers have a natural proclivity to invest in multinationals (even at expensive prices) rather than invest in an African company listed on an African stock market that has better fundamentals and an acceptable level of liquidity.  The two stocks that foreign investors stake their money in on the BRVM are multinational companies.  These multinational companies are allowed much higher earnings multiples than local companies in the same industry.      

Everyday we make decisions professionally and personally.  Everyday, more of these decisions are driven by what really does not matter, but is allowed to matter a lot.  All is not well; too many of you reading this will remain in denial and say there is no prejudice worth mentioning.  That's the crux of the matter and very worrisome.   

Money is supposed to break down walls, not build them up.  Let us move this topic from the back of the bus to the front.  Maybe, just maybe, the major markets of black Africa may also move to the front of the bus and prejudicial feelings in business to the back of the bus.    

I may continue with a part 2 when more thoughts come to my mind.

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