TLG Capital has transformed its private equity fund into a holding company, in a bid to gain investment flexibility and tap into a broader investor base.
The new structure removes the high minimum investment threshold present in private equity funds, and therefore increases investment accessibility for private individuals. Traditional private equity fund investing often requires a minimum investment of $1m, which means investors have to commit to a significant initial outlay to gain exposure.
“It was clear given the current operating environment in Africa to do small-mid cap deals required a more flexible structure that can align the funding vehicle with that of local businesses,” said Zain Latif, principal, TLG Capital.
The new model additionally eliminates the pressure of having to exit assets within the traditional private equity time frame of three to five years, which can be disruptive for SME companies. The holding company structure also gives the investor additional exit options, as TLG can either sell off the individual portfolios or exit the whole holding company. This adds listings to the exits radar, an option not normally available at SME level.
“We intend to list the holding company in a few years provided we are unable to individual exits on the portfolio companies,” explained Zain Latif, principal, TLG Capital. “This extra flexibility allows us time to grow our businesses as opposed to be constricted by fund life.”
The move has boosted TLG’s investor base to about 30 stakeholders, who will also be able to tap into its existing asset base. TLG’s assets are currently valued at $21m, and set to reach $25m by year-end, based on follow-on investments into portfolio companies. Interestingly, the holding structure has attracted a significant amount of interest from Africa-based private investors.
“We have seen strong interest from indigenous Africans who tend to appreciate buying shares in as opposed to invest in a fund structure,” said Latif.
Investors seeking African exposure can buy into TLG Africa, which has been created to house the Africa-focused holdings. Those seeking broader emerging market returns can invest into the main TLG holding company which also covers TLG Asia. Excess capital will be placed into TLG Fixed Income, which has been added onto the platform to bolster returns.
“Clearly there are challenges within the company framework but taking into consideration the deals we are involved in and our long-term commitment to grow these businesses, we felt this was the most optimal structure to follow through with” said Latif.
TLG Capital will continue with its strategy of pursuing opportunities in the fast moving consumer f goods (FMCG) segment, with focus on deals under $15m. The investor is also scaling up its existing investment platforms which includes healthcare and consumer businesses in East and West Africa.
“We remain convinced that this is the sweet spot in the region and we have tailored our investment vehicle to target such companies,” says Latif.
The investor’s core strategy is to inject growth capital into companies operating in the ‘missing middle’ space. TLG also works to create platforms that facilitate the transmigration of technology into sub-Saharan Africa from more advanced emerging markets like India.
TLG has brought in TMF Group as an independent asset administrator, responsible for valuations and portfolio financial reporting. The UK-based administrator will also carry out Know Your Customer (KYC) checks on new investors. TLG Capital will continue to maintain its strategic alliance with Duet Capital, which was forged in 2011.