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Although there area variety of options for raising capital and attracting investors, equity is oneof the two most sort after options. It allows a company to give a share ofownership of its business to an investor in expectation of a return as thebusiness grows. Unlike public equity (stock market) with ownership of shares ina public company, private equity (PE) simply means ownership of shares in aprivate company.

Private equity is atype of capital investment (asset or security) made to (target) companies thatare not publicly traded on a stock exchange. As an alternative form of privatefinancing, private equity allows investors directly invest in companies throughwhich such investors gain an ownership stake in the companies. Investors seekPE funds to earn returns that are considered to be better than those from thepublic equity markets.

To avoid debt,companies can sell its stocks to raise money that can be used to fund newtechnology, make acquisitions, expand working capital, and fund projects gearedtowards business growth. Usually, the financial information on stocks of such acompany is not disclosed to the public, rather an investor can only speculateon the asset worth of the intending company.

Private equityinvolves three parties: the investors who supply the capital, the privateequity firm that manages and invests the money on behalf of the investor via aprivate equity fund, and the company (known as Portfolio Company) that theprivate equity firm invests in. A private equity firm's ultimate goal is tosell or exit portfolio companies to deliver superior returns (above the benchmarkreturn also referred to as Internal Rate of Return (IRR) to earn carriedinterests).

The most widelyadopted investment strategies by PE investments are leveraged buyouts (LBOs)and venture capital (VC) investments. In LBOs, a PE firm will raise debt frominstitutional investors on the back of a target company and assume control ofthe target company, while using the cashflows of the target company to pay theacquisition capital. Whereas, the VC makes investment in young and fast-growingcompanies in an industry that has the potential for exponential growth whileadding value to the firm being taken up. In some cases, PE firms grow andimprove a middle-market company with the aim to sell or exit to a maturecompany within a specified period.

Generally, privateequity firms are active investors who are involved in the board level andmonitor the financial and operating performance of portfolio companies.However, some private equity firms are involved in the day-to-day operations ofportfolio companies and may take C-level positions such as CEO, CFO, CIO,and COO to ensure that value creation initiatives areimplemented in the portfolio companies to ensure that increase in revenue,improvement of operational efficiency and corporate governance.

A private equityfund is typically opened to institutional and accredited (individual orbusiness entity) investors who invest large sums of money for a long period.Institutional investors are companies or organisations like endowment funds,commercial banks, hedge funds, mutual fund managers, and insurance companiesthat invest money on behalf of other people.

Accreditedinvestors on the other hand are individuals or a business entity that investbased on their income, net worth, asset size, governance status, orprofessional experience. The reason is that private equity as an asset class isgenerally illiquid and has a long lock-up period and only ideal for investorswith a large asset size (or AuM).

Other alternativeinvestments include infrastructure assets, art, antique furniture, automobiles,real estate, commodities, exchange-traded funds, and hedge funds. The marketperformance of traditional investments and alternative investments areindependent of each other, hence, the inclusion of alternative investments in aportfolio can reduce its risk through diversification.

Before thecoronavirus outbreak, PE investments in Nigeria have been flourishing and as aresult in 2019 Nigeria was described by the African Private Equity and VentureCapital Association (AVCA) as one of the most attractive destinationsfor PE investments. Between January and February 2019, PE in Nigeria recordedinvestments worth

277.64 billion($767 million), an improvement of 345 per cent compared to   62.37billion ($172 million) worth of deals closed during the corresponding period in2018.

The deals withinthe first two months of 2019 included the 100 per cent acquisition of Chi Ltdby Coca-Cola Company for the sum of $500 million, which accounted for 65 percent of the total private equity investments within that period. Other notabledeals included Access Bank Plc's acquisition of Diamond Bank Plc., thePartech- led Series A funding of Kudi, a financial services provider, and theacquisition of Wakanow, a travel agency, by the Carlyle Group valued at $40million, to mention a few.

Whyinvest in Private Equity?

Private equityfirms have grown over the years to become attractive investment vehicles forwealthy individuals and institutions who manage large pools of capital. PEoften guarantee better returns compared to other investments, with some privateequity managers outperforming the public markets. To diversify holdings,investors turn to private equity for higher returns than do public market.Specifically, such investments are for investors who can afford to have capitallocked up for long periods.

Investors inprivate equity funds are called limited partners. As a limited partner, you geta return on your investment when the private equity firm sells the company itpurchases while the private equity firm (also called general partners) takessome percentage as profit.

In Nigeria, differentPE firms like FBNQuest Funds have their specific deal sizes, investmenthorizons, sector focus, fundraising timelines, and exit strategies. As one ofthe leading alternative investments managers in Nigeria, FBNQuest Funds hasbeen in operations for over 17 years and has invested in over 70 privatecompanies through direct investing and their expertise and exposure to PE andVC Funds. Domiciled in Nigeria, the firm has investments in companies inNigeria and other countries within the Sub-Saharan Africa region.

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