# **OVERVIEW**

# **Objective**

The objective of this study is to assess the private equity/venture capital (PE/VC) ecosystem in Ghana. PE/VC firms are investment managers that mobilize fixed pools of capital to invest in a variety of companies, often across many industries.<sup>2</sup> These firms typically comb the market for high potential investment opportunities through their network of intermediaries, and by developing business linkages and competencies in specific sectors. Apart from providing financing, PE/VC funds tend to take a “capital plus” approach, in that they help the companies in their portfolios to enhance management capacity, improve market focus and presence, strengthen governance, and manage growth. Although PE investment styles may vary considerably, many firms seek financial returns by supporting and financing the growth of the companies in their portfolios. As such, these firms are widely linked to job creation.<sup>3</sup> Given the high value-added that PE/VC firms can bring to the economy, this study aims to identify barriers to PE/VC investment in Ghana by assessing the private equity and venture capital ecosystem in Ghana. Specifically, it focuses on the market impediments faced by domestic and foreign fund managers and investors in this ecosystem as well as the legal and regulatory framework and tax environment related to PE/VC funds and their managers. While the study does not aim to assess specific initiatives, it discusses the role of public sector initiatives, such as the Venture Capital Trust Fund that aim to facilitate PE/VC investment.

# **Global PE Market**

Global private equity<sup>4</sup> assets under management (AUM) totaled US$3.8 trillion in June 2014, with US$1.8 trillion in dry powder<sup>5</sup> as of December 2014.<sup>6</sup> Almost 60 percent of PE/VC AUM was accounted for by North America; while Europe comprised almost a quarter and Asia 13 percent of total AUM. In 2014 PE/VC funds raised a total of US$495 billion in capital, down 6 percent from the $528 billion raised in 2013. According to data from Preqin, global fund raising for private equity in 2015 is expected to jump, projected to surpass US$790 billion. Investment deal flow remained active in 2014 with 5,305 completed PE deals totaling US$996 billion of capital invested, which marked an 8-year high, according to Pitchbook.<sup>7</sup> Venture capital comprised US$86 billion in deal value in 2014; while buyout activity was US$332 billion.<sup>8</sup> 2014 saw the recent trend of increasing numbers of firms focusing on minority and growth investments, add-on investments, and liquidity continue, with US$445 billion in capital exited from such investments, up 46 percent from 2013’s US$305 billion.<sup>9</sup>

> 2 This section draws from “Private Equity and Venture Capital in SMEs in Developing Countries: The Role for Technical Assistance,” World Bank Policy Research Working Paper 6827 co-authored by Shanthi Divakaran, Patrick McGinnis, and Masood Shariff.  It also draws from Private Equity: Fund Types, Risk and Returns, and Regulation.  Douglas Cumming, 2010. 3 See IFC job study.  www.ifc.org. 4 "Private equity" or "PE" references encompass the following strategies: buyout, growth, PIPE, mezzanine and venture capital. 5 Capital committed but not yet paid-in and deployed.

> 6 Preqin 2015.

> 7 Source: Pitchbook,  http://pitchbook.com/pr_20150109_2.html.

> 8 Preqin 2015.

> 9 Source: Pitchbook.

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