By Moyo Babalola, Doubra Eghage, Oti Ilentamen, Yewande Adewusi

Portfolio selection approaches differ depending on economic profile, geography, and capital market advancement. The focus of this article is selecting private capital opportunities within developing markets.

As private capital investors within the African continent, the team at Alitheia Capital utilizes several approaches to identify attractive industries to invest in. The common objective of these approaches is to identify the sectors that bridge the output gap of the target countries. The underlying premise is that bridging the output gap would align with government plans and provide the best positioning to achieve optimal growth that outpaces the effects of a volatile macroeconomic environment.

Assets within developing markets present a different risk profile compared to those in developed markets primarily due to macro-level patterns such as foreign exchange volatility, inflation rate, and interest rate. Macro-level patterns are systematic i.e. not specific to any industry or company, and beyond the control of private capital investors. Therefore, it is pertinent that private capital investors utilize a portfolio selection strategy that provides a degree of macro-level mitigation even when patterns are difficult to predict.

This article is part of Alitheia’s ongoing insight series that will showcase our learnings and ideas from nearly two decades of investing across African markets.