1

Module 3 Demonstrate: Milestone 1

Hafsat Saliu

Nexford University

BUS 6100: Global Business

Dr. Bill Reed

April 25, 2023

International Markets

Private Equity (PE) has carved a niche for itself in the Investment Vehicles industry. A close

observation of happenings in the industry globally shows that the industry is expected to

continue on a path to growth, with the industry’s global revenue expected to grow at an

annualized rate of 7.3% over the next five (5) years.

The PE market in India has grown rapidly since the early 2000s, with its investor base

quadrupling from 200 to 800 active, diverse pools of capital, and an acceleration in buyout

capital for quality assets (Sheth et al., 2023). The industry’s market capitalization has grown

from $2 billion in 2004 to over $45 billion in 2019 (Juneja, n.d.) and $61.6 billion in 2022 (Sheth

et al., 2023). India has a strongly supportive regulatory landscape, highly developed digital

infrastructure, and talent. The industry is bolstered by a maturing ecosystem, which demonstrates

its confidence and resilience to navigate any turbulence ahead (Sheth et al., 2023). Leveraging

this, we seek to establish our new PE firm, Affie Investment Company (A.I.C.) LLC, in New

Delhi, India. We fully understand that the nature of private equity investments requires the

services of core investment professionals and the employment of strategies that can help reduce

market risk. While headquartered in India, we shall, for our global expansion, enter the African

market with a focus on Nigeria. Why? Africa’s private capital investment has remained resilient

in the face of diversities and a challenging environment. The year 2022 particularly presented

numerous challenges for private capital fund managers globally as the global economy slowed

down due to factors such as the Russia-Ukraine war and the resulting energy crisis, supply chain

disruptions, along with rising inflation, and the associated increase in interest rates. Nevertheless,

Africa recorded a remarkable 46% year-over-year increase in deal volume (global private capital

investment = -15%), resulting in a 24% year-over-year growth in the volume of private equity
 3

investments and a 7.2x growth in private debt investments (African Private Equity and Venture

Capital Association, 2023), with Nigeria ranking first in the number of deals executed (256

deals) and a market cap of US$ 1.6 billion between 2016 and 2022 (African Private Equity and

Venture Capital Association, 2022a). This, in addition to its large economy and population size,

makes the country a popular investment destination in Africa. Despite its rapid growth, the

amount of private equity and principal investment capital mobilized in Nigeria and Africa at

large remains very low relative to world standards and the funding gap required in the continent

(Dupoux et al., 2020), making it a prime market for our services.

Governing Bodies

The Securities and Exchange Board of India (SEBI) governs the regulatory aspects of private

equity investments in listed entities, alternative investment funds (AIFs), and private companies

in India made by AIFs (Securities and Exchange Board of India, 2020).

The rules, regulations, circulars, and guidelines issued under the Foreign Exchange Management

Act, 1999 (FEMA), enable India's central bank, the Reserve Bank of India (RBI), to monitor and

regulate the inflow and outflow of foreign money into and from India, including with respect to

all foreign investments (Saakshya Law Advocates, 2022).

India has an abundance of legislative provisions at the federal, provincial, and municipal levels

that have relevance in the private equity context. These, in addition to the factors listed below,

make the Indian private equity market appealing and relevant to investors and firms alike:

1. India is a common law jurisdiction whose legal principles, key regulatory structures, and

enforcement structures are largely similar to those found in the United Kingdom and the

United States (Saakshya Law Advocates, 2022).

2. India’s legal system is based on the principles of freedom of contract and due and proper

enforcement of contractual provisions freely entered into in accordance with the relevant

laws. This makes it easier for foreign investors to understand, enter, navigate, and exit the

Indian market on the basis of mutually agreed contractual understandings (Saakshya Law

Advocates, 2022).

3. The creation of an enabling regulatory environment by the Indian government that allows

both domestic and foreign private equity firms and investors to benefit from growing

certainty and increasing exactitude in the regulatory environment (Saakshya Law

Advocates, 2022).

In Nigeria, PE funds and firms are regulated by the Securities and Exchange Commission (SEC)

and required to comply with the Investments and Securities Act 2007 (ISA) and the SEC Rules

(The Securities and Exchange Commission, 2015). The corporate structure we intend to adopt in

Nigeria is a limited partnership registered under the Companies and Allied Matters Act (CAMA)

for its tax efficiency (Balogun & Obafemi, 2021).

Challenges and Opportunities

The Indian private equity industry has evolved over the past two decades from nascent levels to a

size and sophistication that global investors find attractive. Nonetheless, the industry still faces

challenges such as the absence of a well-developed capital market, regulatory obstacles and

sudden changes to government policies, corporate governance and integrity issues faced by the

PE firm as they relate to the existing management at some of the target firms, and structural

constraints such as the inability to raise funds from the domestic capital market (Knowledge At

Wharton, 2019). On the positive side, India offers PE firms the opportunity to grow and scale
 5

companies by leveraging the country’s extremely talented, world-class entrepreneurs

(Knowledge At Wharton, 2019).

As a leading economy in Africa, Nigeria remains open for private equity (PE) business, and the

overall outlook for PE fundraising and deal activity in the country remains positive. Despite the

rapid growth of the industry, it is still faced with some hurdles, such as the steep regulations and

guidelines imposed by the Securities and Exchange Commission (SEC), corporate governance

issues, disputes and resolutions between a PE investor and the local partner or management of an

investee company, and infrastructural challenges (i.e., electricity, water supply, domestic

aviation safety, broadband and fledgling mobile communication, and transportation and roads,

etc.) which pose unique challenges in the operating environment (Elias-Adebowale, 2019).

The silver lining here is that the above challenges present opportunities and significant potential

rewards for longer-term PE investment in Nigeria in infrastructure, food, consumer goods,

human capital development, healthcare, entertainment, and leisure, as noted in PE investment

success stories such as the 2010 Helios-led investment in Interswitch, Andela’s multi-million

dollar investments, Carlyle Group’s $40 million acquisition of Wakanow in 2018, TPG Growth’s

$48 million investment in Cellulant, and many more. With continuous government support, it is

expected that the various bottlenecks will be resolved equitably in the near future (Elias-

Adebowale, 2019).

Sustainability

AIC’s path to sustainability is through the Environmental, Social and Governance (ESG)

investing model and impact investing. By adopting ESG into our business model and investment

cycles, we are poised to achieve ESG regulatory compliance as more governing bodies, both

nationally and internationally, start to incorporate sustainability into legislation. We will also be
 6

positioned to attract more investors, who now consider ESG factors among others in making

investment decisions. Furthermore, we understand that having clearer ESG processes will enable

us and the companies we invest in to perform more effectively and drive value creation, granting

us a significantly less risky portfolio.

Supply Chain Management

A supply chain management system refers to the coordination of all supply chain stakeholders to

achieve the desired results (Majumder & Habib, 2022). Supply chain management in the

financial services sphere refers to the supply and trade of finance-related information and its

timely, accurate, and true representation of the capital commodities or services provided by the

financial institution (Sharif, n.d.).

At AIC, we shall adopt the 'make-source-move' model as described by Sharif (n.d.) in our

information management such that at each step within this lifecycle of this information flow, we

are able to complete a financial service business process. By doing so, we are able to define and

distinguish between our core values and operating behavior.

Conclusion

Following our research, we can confirm that there is a market for the prospective PE firm to be

established in India and the proposed expansion into the African (Nigerian) market. The

regulatory bodies governing these two markets are well-developed and provide significant

support to the market players. While the markets are not without challenges, they also breed

opportunities that can lead to the success of the firm. With our sustainability plan (ESG and

Impact investing) and understanding of our supply (information) chain system, we, at

implementation, are set to achieve our set goal of providing access to sustainable funding for

social development while meeting the interest of all stakeholders.

References

African Private Equity and Venture Capital Association. (2022, March). AVCA | Q3 2022

Industry Quarterly Review. AVCA. https://www.avca.africa/data-intelligence/research-

publications/q3-2022-industry-quarterly-review/

African Private Equity and Venture Capital Association. (2023, April). AVCA | 2022 African

Private Capital Activity Report. AVCA. https://www.avca.africa/data-

intelligence/research-publications/2022-african-private-capital-activity-report/

Balogun, A., & Obafemi, D. (2021, September). Legal and regulatory framework for private

equity in Nigeria. Financier Worldwide. https://www.financierworldwide.com/legal-and-

regulatory-framework-for-private-equity-in-nigeria#.ZErgqM7MK5c

Dupoux, P., Hammoud, T., El Fihri, S., Becker, M., & Chraiti, A. (2020, August 19). Why Africa

Remains Ripe for Private Equity. BCG Global.

https://www.bcg.com/publications/2016/private-equity-globalization-why-africa-remains-

ripe-private-equity

Elias-Adebowale, F. (2019, July 8). Nigerian private equity: Weighing the risks and rewards.

IFLR. https://www.iflr.com/article/2a6397nm0pg8q3v2mv6dc/nigerian-private-equity-

weighing-the-risks-and-rewards

Juneja, P. (n.d.). Private Equity in India. Www.managementstudyguide.com. Retrieved April 26,

2023, from https://www.managementstudyguide.com/private-equity-in-india.htm

Kedem, S. (2023, March 3). Private debt investment surges in Africa. African Business.

https://african.business/2023/03/finance-services/private-debt-investment-surges-in-africa
 8

Knowledge At Wharton. (2019). Private Equity in India: What Excites Investors? -

Knowledge@Wharton. Knowledge@Wharton.

https://knowledge.wharton.upenn.edu/article/private-equity-in-india/

Majumder, M. I., & Habib, M. M. (2022). Supply Chain Management in the Banking Industry: A

Literature Review. American Journal of Industrial and Business Management, 12(01),

10–20. https://doi.org/10.4236/ajibm.2022.121002

Saakshya Law Advocates. (2022, November 11). Private Equity Comparative Guide - - India.

Www.mondaq.com. https://www.mondaq.com/india/corporatecommercial-

law/1023428/private-equity-comparative-guide

Securities and Exchange Board of India. (2020). Securities and Exchange Board of India.

Sebi.gov.in. https://www.sebi.gov.in/

Sharif, A. (n.d.). Perspectives on information and supply chains within investment banking

SAFE-Q: Safeguarding Food and Environment in Qatar View project.

Sheth, A., Krishnan, S., Shukla, A., Kashyap, P., & Sapra, R. (2023, April 19). India Private

Equity Report 2023. Bain. https://www.bain.com/insights/india-private-equity-report-

2023/

The Securities and Exchange Commission. (2015, October 19). Investments and Securities Act.

The Securities and Exchange Commission, Nigeria. https://sec.gov.ng/investment-and-

securities-act/