The Evolving Nigerian Private Equity Landscape: Finally Coming of Age?

MISSING PIECES

While the Nigerian private equity industry continues to grow, it is easy to see it still has some way to go. In a January 2015 Article titled, “Unblocking the Pipes”, The Economist Magazine identifies private equity as one of the main alternatives for bridging funding gaps in countries like Nigeria where normal routes to capital have been blocked or are yet not fully developed. It is not enough to not impose barriers, Nigerian regulators need to actively court private equity to Nigeria.

Although regulation of private equity funds tends to be light, more needs to be done in terms of registering and monitoring fund managers. This should make it easier for local funds to find investors and for investors to diligence funds. Furthermore, rules regarding investment of pension funds in private equity need to be revisited with a view to facilitating more pension fund investment. The value of restricting such investments to funds registered with the SEC is unclear given the limited monitoring of such fund managers. Focus needs to be on more substantive issues like the investment regions, flexibility of exit and other terms. Clearer rules are also required regarding private equity investments by insurance companies. Furthermore, a federal limited partnership registration regime is urgently required.

Beyond rules regarding fundraising, the regulatory framework is lacking in other areas too. The CAMA, the main legislation regulating companies in Nigeria was enacted in 1990 and has barely been revised since. Urgent reform is required here to strengthen minority protection rules and introduce some flexibility around control and voting issues in private companies.

The future outlook for private equity in Nigeria remains positive. More however needs to be done to accelerate the progress.

END NOTES

• Cap V2 Laws of the Federation of Nigeria 2004

• Cap C20 Laws of the Federation of Nigeria 2004

• Collective Investment Schemes are however specifically defined in the Investments and Securities Act No. 29 of 2007 (“ISA”) to mean schemes “in pursuance of which members of the public are invited or permitted to invest …”.

• The Pension Guidelines are currently being reviewed.

• This is currently being considered for revision to 60% in the revised draft of the Pension Guidelines.

• Between 1% and 3%, depending on the rating of the fund and whether or not its investors include multilateral agencies or DFIs.

• A sub-Saharan Scramble, The Economist, January 24, 2015

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