How One Pension Fund Identified Investment Opportunities in Africa

December 15, 2021


Nairobi Business Commercial District, seen from Kenyatta International Conference Center. (Photo: USAID East Africa Trade and Investment Hub)

By Emily Langhorne, USAID INVEST

In 2019, Chicago Public School Teachers’ Pension and Retirement Fund made its first commitments on the African continent. Since 2017, Chief Investment Officer Angela Miller-May participated in the U.S. Government’s Mobilizing Institutional Investors to Develop Africa’s Infrastructure (MiDA) Program. Through the program, Miller-May learned about the continent’s investment opportunities, and, for the first time in her life, she visited Africa.

After traveling to Africa, Miller-May’s preconceived ideas about the continent disappeared. Where she once perceived risk, she now saw growth and opportunity — for Africa and for Chicago’s teachers.

Africa needs infrastructure investment — the continent faces a funding gap of about $3.3 trillion for achieving electricity, water, and sanitation access alone. Meanwhile, the Chicago Teachers’ Retirement Fund is facing a funding crisis of its own that investments in Africa are well positioned to address — the $12.2 billion fund is only about 46 percent funded. Managing the retirement benefits for approximately 88,000 active and retired public school teachers, Chicago Teachers’ needs higher returns so that it can continue to make monthly pension payments to current and future retirees — returns that many of Africa’s fast-growing economies can offer.

With U.S. Government support, Miller-May was able to explore Africa’s opportunities firsthand. Many institutional investors have been reluctant to invest in the continent because they’ve never been there, but their institutions also don’t have the budget for such an exploratory trip. As a result, these U.S. investors are missing out on opportunities that could benefit their retirees and also positively affect the lives of people across Africa.

By educating U.S. investors about Africa and funding trips to the continent, the U.S. Agency for International Development (USAID) used just $2 million in grant funding to mobilize over $1 billion in two-way investment commitments in just three years.

As a result, Chicago Teachers’ contributed $20 million in commitments to two Africa-focused private equity funds. Miller-May was a driving force behind these commitments, and her experience visiting Africa was the driving force behind her decision to invest.

This interview has been edited for clarity and length.

How does the media’s portrayal of Africa influence U.S. investors?

Miller-May: Encouraging investment in Africa is really about dispelling the perceptions of risk. I think those of us that know and have seen the opportunities in Africa need to be more vocal and work to dispel those perceptions. We should sponsor more trips so that more people can see the true Africa — its beauty and the opportunities that are there.

Before my first trip, I didn’t know much about the continent. The Africa I saw was different from the Africa in my mind. It’s not one country. It’s 54 different countries with different customs and different politics.

For example, flying into Senegal that first year, we landed at a small airport, which was sort of how I had envisioned Africa. Then, we began to explore different cities, and my perceptions changed. When we went to Johannesburg and visited the stock exchange, I felt like I was in New York City. 

Could you describe the commitments that were made and how Chicago Teachers’ discovered these investment opportunities in Africa?

Miller-May: Searching for strategies, sectors, and geographies that would offer us growth opportunities is essential for increasing Chicago Teachers’ returns and protecting the capital that we have, so we started to educate ourselves about Africa. We attended a conference held by the National Association of Securities Professionals that featured the U.S. Government’s MiDA Program.* We listened to the GPs [General Partners] and the continent’s growth story, and, then, as part of the MiDA program, we visited Africa.

Seeing Africa that first year sparked my interest into how the investment opportunities that were there could mesh with the needs that Chicago Teachers’ had. It was really about combining our fiduciary responsibility of making sure that we were investing in growth opportunities with what was needed in Africa — investment capital.

We started seriously researching the opportunities. We went back a second time with the MiDA Program. We met with countless GPs and banks because investors were interested in hearing from U.S. allocators who had capital to invest. We started to form partnerships and meet with different managers and organizations. That trip was so busy. There was no sleep. We rested in airports and slept on the planes that moved us from country to country.

Our third trip was focused on due diligence. By then, we were talking about investments, co-investment, and risk mitigation. I had identified maybe 10 investable GPs, and I was now asking, “What is your fund strategy? What is your capital raising targets? What is your process for risk management? How many assets do you expect to invest in? What is your experience with deal sourcing? Who are your strategic exit targets? What are your expected net returns? What countries and what types of companies fit into your strategy?”

We were learning and educating because we had to teach African-based GPs about how we do business in the U.S. We hire all managers using a request for proposal (RFP) process, so we had to explain our procurement process, our legal structures, our regulations, and our contracts.

However, we had met quality GPs, and it came to a point where I thought it was time to invest, so we ran the RFP. We received 22 responses, and we invested $10 million with two complementary managers that provided diversified exposure.

One of the fund managers, AFIG, which is headquartered in Dakar, Senegal, invests across nine core countries with a focus on West, Central, and East Africa. Their strategy is to invest in the middle market and support local entrepreneurs. The other manager, DPI, which is headquartered in London and Lagos, has a pan-Africa focus. Their strategy is to invest in established businesses with strong projected growth rates. We thought those two managers gave us great exposure and complemented each other.

We scaled these allocations as we do with any new emerging manager. When we invest in emerging managers and diverse managers in the United States, we also scale our allocations to $10 million or $15 million because there is a lot of opportunity for returns, but there is also some risk. It is an allocation that allows a manager to prove themselves worthy of more capital in follow-on funds.

These new allocations are allowing Chicago Teachers’ to test the waters. My hope is that these two managers with their great reputation and experience could start to alleviate some of the angst of investing in Africa and really open the door to more investments and increased returns.

How does investigating investments in Africa connect to your responsibility as a fiduciary?

Miller-May: How can you not be interested in a continent that is about growth?

The long market cycle that we were in — the slow growth and low returns — along with our actuarial rate and underfunding means we are constantly looking for ways within our risk profile to grow our assets and have the returns that we need to come closer to being fully funded and to make those pension payouts on a monthly basis.

Wherever we can find opportunities is where we’re looking. That’s part of being a good fiduciary to the fund. It’s not only protecting capital but also about growing capital. We looked at numerous sector drivers that proved, for us, the opportunity. The continent has compelling and favorable demographics. Since 2010, there have been more than 122 million people added to the workforce. There’s an additional 2.5 billion people that are going to enter the middle class by 2030. The demographics really held my interest — the population growth and growing urbanization. Urbanization has a strong correlation to GDP growth in Africa.

Africa is well positioned for increased infrastructure investing and private equity investing. It’s a long-term growth story and for a long-term investor like Chicago Teachers’ Pension Fund, it just made sense.

For me, it was filled with opportunities, and as I saw Africa one year to the next, it was changing.

The second year, flying into Senegal, I did not recognize it. It was not the airport we flew into before. It was a new airport — state of the art — and we drove out of the airport on new toll roads. We visited wind farms and power companies. There was so much going on. It reminded me of Chicago because we always have cranes up here: it’s always construction and activity. I was mesmerized how in a short amount of time so much growth had happened. I thought, “We really need to be a part of this. We really need to invest and reap some of the benefits that are going on now and that are going to go on in the future.”

So as a fiduciary, I felt like I would be remiss if I didn’t consider investing in emerging markets, specifically in Africa, where we expect growth and returns. That investment isn’t just one-sided. It solves a problem for us, and it solves a problem for Africa.

How will channeling private equity into companies positively affect the lives of people in Africa?

Miller-May: I think that private equity capital has the power to really solve some of the financial and social and environmental challenges of Africa. It has a tremendously positive effect on the lives of the African consumer. It can expand entities working in technology, healthcare, and financial services, which is needed to match the huge demand that will be created by population growth and increased urbanization.

Private equity plays an important part in delivering valuable services — agribusiness, food and beverages, distribution and logistics, manufacturing, telecommunications, transportation, and more. Over the next decade, Africa will have many more people in their productive, working years, and private equity will work to service the companies that will then service those people. It’s all connected. Providing capital to African companies that can deliver the services and businesses that Africans really need will help the continent meet its development objectives, such as those in Agenda 2063, that are designed to take Africa to that next level. Private equity is that vehicle that’s going to get them there.

Have you noticed a shift in the priorities of future retirees? Are they demanding impact alongside their future financial returns?

Miller-May: I have. You know teachers. They are driven. They have a voice, and they are going to use their voice. They want to create a better future. They see the impact that they are having on our children, and they think, “I can teach this child all they need to know to survive but in what type of world? What type of world are we leaving for them?”

Our teachers have become more interested in ESG efforts and impact. They want their investments to be sustainable. They ask us about climate change. They tell us that they don’t want their dollars invested in fossil fuels. They tell us that they care about diversity. They voice their opinions, and we balance out ESG factors as well as sustainable and responsible investments.

We make sure that our investments aren’t going to the manufacturing of firearms, private prisons, or businesses with irresponsible practices and operations. We want our managers to also consider some investments as restricted and to look at investments that will foster better ESG and impact investing.

In addition to our Africa investments, Chicago Teachers invests 48 percent of its assets with minorities, women, and persons with disabilities. Investing for ESG factors is a strategy and investing in diversity is a strategy. All these things play a part in having great, sustainable investing that will have an impact. That’s what we try to strive to do as we look for more investments to put into the portfolio.

Institutional investors have the opportunity, through private equity, to play a transformative role in boosting investment and job creation in Africa while earning the returns that we need through this economic impact.

*In 2016, the United States Agency for International Development partnered with the National Association of Securities Professionals to launch the MiDA initiative. From 2017 to 2019, the grant-funded initiative ran investor delegations to Africa and held conferences to educate U.S. institutional investors about Africa’s investment opportunities. Upon the initiative’s conclusion, its principals formed MiDA Advisors, a U.S.-based advisory firm that focuses on increasing U.S. institutional investments in African infrastructure and markets.