Busi Mabuza Takes On The Men In The Private Equity Market
Busi Mabuza, a partner at pioneer firm Ethos Private Equity, is part of the fundraising team for the firm's Ethos Fund 5, which is seeking to raise $500 million (R3.4 billion). Mabuza says financial services regulators should relax restrictions on institutional investors' participation in the industry.
How did you become a fund manager in private equity?
My journey started in the public equities fund management market. I started off looking on the listed market, where you find traditional fund managers. My entry into private equity was an opportunistic one. I was invited to an opportunity where the Industrial Development Corporation and other investors were in partnership with previous private equity fund management businesses to set up a private equity fund that targeted women to promote women's entrepreneurship.
What attributes do you think are important for a fund manager in private equity?
Probably the unique requirement is that people need to have skill, given that in private equity, you interact closely with the assets of the businesses that you are invested in. You need to have relationship skills. You need to foster opportunities, interact with management and add value to the business. But you need to be able to negotiate. You need to have financial acumen, to value the assets or the opportunity. Most people have a corporate finance background because there is need for number crunching skill. You need to have a basic level of understanding of the law.
Do you think the industry will help to create big corporate names in South Africa, as was the case in the US from the 1980s to the 1990s?
I think it's probably already happening. The difference with South Africa is that the private equity industry is not as high-profile as the venture capital or private equity industry in the US, the UK, or in some European countries. We have probably witnessed some already and it will continue in the future, especially with the economy being where it is and likely to grow. With the growth that is anticipated over the next few years, there will be opportunities for a number of companies and you will find private equity fund managers playing a key role in unlocking opportunities.
What are some of the challenges that have affected the industry?
One of the biggest challenges is the regulation of the most probable source of private equity capital, pension funds. Pension funds can only invest a limited amount of their total assets in unlisted entities and that restricts the total size of capital that they can source from institutional investors. I expect we will see that pool grow in the future. We hope that the Financial Services Board or the government will relax some of the restrictions as they see the industry adding value to the financial services sector. Lack of skills is a challenge for the industry, but that is a national problem, not specific to private equity. I think there are concerted efforts within the SA Venture Capitalists' Association to address that problem. There are more exciting challenges that challenges are opportunities, such as the entry of international players.
How can these challenges be overcome?
I think you will find that the industry is becoming more visible in the economy. We have, for example, students at university level who are affiliates of the Association of Black Securities and Investment Professionals, who visit us at Ethos to find out about private equity. Once they have access to that information, you will see more people getting interested in the industry. The other way to address the problem would be deliberate interventions that companies and the industry should put in place. As the associated and shared growth initiative for South Africa is better understood by the different players in the private sector, industries will try to find ways of addressing the shortage of skills and the targeted growth of the economy. There has been a debate on the role of pension funds in private equity.
What is your view?
I think players in the industry or the regulator could address some concerns, such as the liquidity of some instruments, valuations and what happens when pension funds want to liquidate their holdings. Completely leaving out such an important asset class or restricting it to the level that we see at the moment is unfortunate. We have seen trends in other countries, the UK for example, where government has played a role in encouraging institutional investors and pension funds to look at asset classes such as private equity. That has resulted in a boom in the private equity industry. It's a matter of time before we see that happening here.
Looking back at some of the deals that Ethos has been involved in, what lessons have you learnt?
I have been here for a year and a half and in that time Ethos has closed three buying transactions. We have closed a few other transactions that were exit opportunities. There is a wide range of lessons. For a private equity player to remain ahead of the pack, there is need for energy and ability to look for opportunities, to buy or exit. There is need to assess opportunities sharply and quickly because competition has been increasing. Pricing in the market has been changing and at the moment we are probably at the high end. There is an even more important skill, adding value once you have acquired an asset, and the ability to source expertise to add value.
What has been your best achievement in the industry so far?
I have been part of a team that has been raising our latest fund: the Ethos Fund 5. The reception that we have received in local and international markets has been absolutely amazing. It has not been easy, raising capital is not easy, but I think the track record that Ethos brought assisted the fundraising team. We have not reached final close yet. We are targeting to raise $500 million and we will probably reach that. In an industry that is male-dominated, aren't you sometimes frustrated? It's the nature of financial services. However, it does not make it right. It's the nature of a number of other industries too. I think South Africa is doing better than other countries, with the help of government initiatives. In many ways we experience frustration, but also in many ways one sees openness and a keener embrace of different people in the industry.
How do you deal with frustration and other pressure within the industry?
The business environment requires deliberate firmness and I think you cannot be firm unless you have the professional acumen and the knowledge that demonstrates you are capable. So you earn respect because of the knowledge you bring to the table. But there are moments when things go astray and it is important to call on people in a cordial but firm manner. In time you gain the respect of your colleagues. What do you do to unwind and refresh after a hectic schedule? I have children who bring me back to reality every time I go home. I think that helps keep things in perspective and time with them are prized moments. I love reading and there are days when I leave the office very late and I cannot wait to get back to a book I was reading.
What would you say to young women in South Africa who want to become fund managers?
Persistence pays. On a more practical note, you need to find people who are already practitioners in the industry and find out about opportunities. I have seen a lot of talented women with energy coming through into the industry and I look forward to seeing more.