Professional Documents
Culture Documents
September 2008
Africa
Moving from promises to results
Africa is indeed on the move. In contrast with the 1990s, conflicts in Africa have declined, economic performance has improved and some clear high performers are beginning to emerge. World Bank 2006
Africa has learnt to trade more effectively with the rest of the world, to rely more on the private sector, and to avoid the very serious collapses in economic growth that characterized the 1970s, 1980s and even the early 1990s. World Bank 2007
Since 1995 there has been at least one African equity market among the top 10 best performing markets in the world. Last year (2007), it was Zambia, posting gains of 127% in US dollar terms. Joining Zambia among the best performing markets was Malawi (up 114%), Cote DIvoire (up 105%) and Nigeria (up 90%). In 2006, Malawi was the best performing stock market in the world posting gains of 129% in US dollar terms. African Business Research Limited
Investing in Africa is risky The region is a basket case that is politically unstable Regulations are insurmountable There are no investment opportunities
Africa in Perspective
Global Land Mass and Proportion of Worlds Resources
Square Miles: China 3,705,390 Proportion of global resources in Africa: Land Mass Diamonds Gold Phosphate Platinum Petroleum Total Africa 11,664,680 11,707,000
Source: Academic Centre for Education Development Source: Ayittey, George B.N. Africa Betrayed, 1993, Palgrave Macmillan , ISBN: 0312104006
Natural Gas
Political Overview
Wind of change blowing across Africa declining political risk
Circa.1980 Current
Macro Overview
12 consecutive years of growth in real per capita CDP Population and GDP Growth (Sub-Saharan Africa ex South Africa)
Since 1995, Real GDP grow th has exceeded population grow th
6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0%
2006E
2007E
2008E
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Macro Overview
African growth is now among the highest in the world GDP Growth across the world
12 10 % Change Real GDP 8 6 4 2 0 2000 World Developing Asia
Source: World Bank Data
2001
2002
2003
2004
2005
2006
2007
2008
Macro Overview
Some out-performing economies 2008 Forecast growth in Real GDP
Angola Sudan Equatorial Guinea Nigeria Uganda Mozambique Rwanda Botswana
Source: World Bank Data
Macro Overview
Sound monetary policies .
8.5% Deficit as % of GDP 6.5% 4.5% 2.5% 0.5% -1.5% -3.5% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
12.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 Budget deficit (US$bn) 10.0
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Macro Overview
have controlled money supply and reduced inflation
25.0% 30.0% 25.0% 20.0% 20.0% 15.0% Inflation (%) 15.0% 10.0% 5.0% 0.0% 5.0% -5.0% -10.0% 0.0% 1988
Source: World Bank data
10.0%
-15.0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E
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Macro Overview
External debt is becoming sustainable
140.0%
Debt Service to Exports Ratio (%)
5.0% 0.0%
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Macro Overview
With a little help from our friends in China
16000 14000 12000 10000 8000 6000 4000 2000 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
US Dollar millions
As the Chinese economic resurgence has proceeded, Africa has become more important for China as a source of the raw materials needed by the Chinese manufacturing sector. African economies, in particular oil and commodity producers have benefited substantially from Chinas demand for raw materials The historical trade deficit with Chinas has now become a surplus
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Africa (ex South Africa) Asia Emerging markets Far East G7 Countries Latin America South Africa World Index World Small Companies
Africa Asia 100% -9% 100% -7% 88% -10% 99% 12% 18% -14% 6% 3% 42% 14% 21% 14% 22%
Far East
G7 Countries
100% 90%
100%
Correlation coefficients based on daily equity returns between 1/1/2000 and 29/09/2006 Source: MSCI, African Business Research
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USD Returns to various equity markets over the period 19 July to 15 August 2007
10% 5% 0% -5% -10% -15% -20% -25% West Africa Sub-Saharan Africa Africa (ex-SAfrica) East Africa North Africa Southern Africa India Japan China Asia Far East Germany United States G7 Index World Index Europe Russia United Kingdom Eastern Europe Emerging Markets South Africa Latin America Brazil
The correction in global equity markets following the sub-prime crisis had minimal impact on Africa
On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time. By August 15, the Dow had dropped below 13,000 and the S&P 500 had crossed into negative territory year-to-date.
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The sell-off in global equity markets following the correction in China in February did not affect Africa
On February 27, 2007, the Shanghai index plunged 8.8%, its biggest one day drop in a decade following rumors of the introduction of capital gains tax on equity investments. Over the next two weeks, most global markets followed with sharp declines.
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Electronic
t+2 for active shares t+3 for dematerialised shares t+4 for physical shares t+3 t+5 t+7 t+3 t+3 t+3 t+3 t+3 t+5 t+3 t+3 t+5 t+5 t+7
Yes
Ghana Kenya Malawi Mauritius Morocco Mozambique Namibia Nigeria South Africa Sudan Swaziland Tanzania Tunisia Uganda Zambia Zimbabwe
Call over Electronic Call over Electronic Electronic Electronic Electronic Electronic Call over Electronic Electronic Electronic Call over Call over
12 countries (94% of the stock markets ex South Africa) have electronic and automated trading platforms. More countries are already planning a switch over.
Yes yes
Also more markets are moving towards the international standard of t+3 settlement cycle
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Natural Log of market size (US$ million) 10 12 14 0 South Africa Egypt Morocco Kenya Cote D'Ivoire Mauritius Tunisia Zimbabwe Botswana Zambia Ghana Malawi Uganda Tanzania Swaziland Mozambique Nigeria Namibia 2 4 6 8
$76.4 bn $14.4 bn $7.3 bn $5.5 bn $5.3 bn $4.9 bn $4.5 bn $4.2 bn $2.8 bn $1.5 bn $1.1 bn $0.85 bn $0.57 bn $0.15 bn $0.1 bn
Size matters ?
Medium
Jumbo
Large
Small
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One of the least known open secrets of the investment world is that African banks are among the most profitable in the world with average ROE above 30%. The high proportion of telecom companies reflects Africas status as the fastest growing telecoms market in the world. The average mobile phone user in Nigeria spends US$22 per month nearly double that of a Chinese user.
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Average annual returns of 11.5% (in US$) over the last 12 years from Jan. 1995 to December 2007, relative to 8.8% for SA, 6.3% for G7 countries and 6.6% for the All Global equities markets.
Source: Local Stock Exchanges, African Business Research
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Zimbabwe
Swaziland
Uganda
Ghana
Kenya
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Cumulative $ returns
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The risk from investing in Africa is similar to that of other emerging markets. The perception that Africa is inherently riskier is not supported by data
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Sharpe ratio for SubSaharan Africa is 1.5x better than for emerging markets generally
-2%
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Risk of Loss
You think I am a loser, wait till you meet my siblings
Number of losing months (Jan 2000 to August2008, 104 Months )
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48
50% 47 346 44 40 45% 38 37 40% 35% 30% 25% 20% 15% 10% 5% 0% Risk of loss
G7 Countries
Far East
World Index
Eastern Europe
Emerging Markets
Latin America
Asia
Risk of loss
Outside the developed world, Africa has the lowest Historic VAR
Source: MSCI, African Business Research
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Trading Liquidity
Spreading equity culture reflected in rising turnover
20.00 18.00 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 4.00 2.00 2000 2001 2002 2003 2004 2005 2006 2007 6.0% 4.0%
16.00
Turnover ratio
14.00
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Investment strategies
Key sectors for equity investors Banks Telecoms Breweries Construction and cement Consumer goods Increasing number of investment vehicles are becoming available. In the last 3 years about 10 new Africa focused funds have been launched Research can be challenging but fun
Africa is just beginning to realise the benefits of the economic restructuring of the 1990s. Africa has had the pain, the gains are about to become evident 15 years ago, Africa would not have been able to cope with a doubling of energy prices. Despite recent doubling of oil prices few African countries have required balance of payments support from the IMF. The continent is less vulnerable to external shocks.
Cost of input
Source: Olivier Blanchard; The Economics of Post-Communist Transition
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A country formed from the ruins of a vanquished army forced from its historic homeland to a small barren island
Taiwan
A country divided after a long and destructive civil war and still technically at a state of war A country that started a regional war, suffered a humiliating defeat, heavy bombing that destroyed its infrastructure and without a history of civil liberties or democratic government
Korea
Japan
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DUET GROUP
Overview
Duet Group is a client-focused financial group specialising in Alternative Asset Management that is dedicated not only to generating superior investment returns, but also to delivering risk management, transparency and client service required by sophisticated investors. Duet Group was founded by Henry Gabay & Alain Schibl in June 2002 in London. Osman Semerci joined Duet Group in April 2008 as Chief Executive Officer and Managing Partner. As of 1st July 2008 Duet Group has USD 1.8 billion of equity under management.
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DUET GROUP
Values and Principles
Duets primary focus is its clients needs. It strives to understand their individual investment objectives. Values such as integrity, fairness and transparency ensure its reputation. Through these qualities it looks to build solid, long-lasting relationships with its clients. Through commitment and respect to its people Duet aims to create a close, collegial working environment. This is essential to produce optimum results from its individual team members and thus determines its overall success. Duets commitment to excellence ensures that they approach each task in hand with professionalism and dedication.
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DUET GROUP
Group Structure
Brazil: ITACARE Real Estate Fund India: SARE South Asia Real Estate Fund India: Duet India Hotels Fund Turkey: Duet Golden Horn Real Estate Fund
Fund of Funds
GSAH Optimum
Capital Markets
Placement Agent
Corporate Finance
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DUET GROUP
Operating Model
Alain Schibl
Henry Gabay
Founding Partner & Co-Chairman
Osman Semerci
Financial Products
New Business Development Marketing CFO Risk Management Compliance Operations Technology 39 39
DUET GROUP
Funds
Duet Asset Management is authorised and regulated by the FSA and is registered as an Investment Advisor with the SEC. Duets mission is to become the leading provider of absolute return investment strategies to sophisticated investors. Each strategy aims to deliver risk-adjusted absolute returns uncorrelated to broad market indices. Duet integrates its Investment Managers through a common infrastructure and economic alignment based on shared equity ownership. The alignment of incentives is critical to achieving sustainability, team collaboration, developing and retaining quality people and building a long-term franchise value. Duet Asset Management Ltd is the Investment Manager of: Hedge Funds
Duet Multi Strategy Duet Global Opportunities Duet Convertibles Duet Special Situations Astor Duet Managed Futures Duet Global Macro
Fund of Funds
GSAH Optimum
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Investment Strategy
The Duet Victoire Africa Index is composed of all companies listed on stock exchanges in Sub-Saharan African countries (ex South Africa) with a market capitalisation above $250 million that meet minimum trading liquidity requirements. The index will replicate the benchmark index by investing all, or substantially all, of its assets in the stocks that make up the Sub-Saharan Africa Large Companies Index, holding each stock in approximately the same proportion as its weighting in the index. The index manager will ensure that the index rules are closely adhered to at all times, however, the investment guidelines allow the index manager to temporarily remove stock from the portfolio if he becomes aware of a company suffering from financial distress or illiquidity.
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Significant challenges are faced for investors seeking alpha. Active managers in Africa are compelled to use a bottom-up approach to stock selection with liquidity and market size as two of the key screening criteria. By the time a stock will meet the minimum liquidity constraints that most active fund managers are using, the stock is not likely to be under-valued. Higher transaction costs in emerging markets combined with high turnover can represent a significant performance hurdle for active managers in emerging markets. Index funds deliver a highly transparent investment processes, that consistently comply with fund guidelines and regulations. Index funds provide investors with low cost access to the performance of different financial markets. For the large relatively liquid stocks in Africa, a passive investment strategy will prove to be effective. Even in Africa it is difficult to consistently beat the market. In the search for alpha, you are more likely to find beta and sigma.
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Historic Simulation
Benchmark Index Price Returns
The historic performance of the Index was simulated back to 31 March 1999 to create a time series of daily returns for the index, with quality revision of the securities in the index. The index has generated positive returns in 27 out of the last 35 quarters.
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Historic Simulation
Summary Statistics Sub-Saharan Africa Large Companies Index
2007 Return
64.7%
14.1%
2006 Return
2005 Return
10.2%
2004 Return
14.7%
12.4% -10.2%
2003 Return
21.5% 599.2%
In last 5 years
Every morning in Africa, a Gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a Lion wakes up. It knows it must outrun the slowest Gazelle or it will starve to death. It doesn't matter whether you are a Lion or a Gazelle... when the sun comes up, you'd better be running.
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No magic bullet, however growth has to be private sector-led Improving property protection rights Enhancing the international networks of African companies Closing the infrastructure gap particularly transportation and housing Creating vibrant financial markets regional cooperation
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