CORRECTED-Kenya private equity firm kicks off 1st fund, property venture

Fri Apr 5, 2013 6:08am EDT

(Clarifies timeframe for plans to seek investment for real estate projects and introduce REITs in paragraphs 7,8)

By Edmund Blair and Kevin Mwanza

NAIROBI, April 5 (Reuters) - Kenya-based private equity firm Catalyst Principal Partners has an eye on demand from East Africa's growing middle class as it starts to make investments from a broad $125 million fund and from a partnership dedicated to real estate.

Mauritius-registered Catalyst, which in November finished raising cash for its first closed-end fund, sees opportunities in a region of about 200 million people, where consumer demand is rising and a big boost from recent oil and gas discoveries is expected for the future.

"We are very much focused on consumer demand on the regional front," said Catalyst Chief Executive Officer Paul Kavuma in an interview this week. He left Actis East Africa to found Catalyst in 2009.

Catalyst this year plans to invest 35 percent of the first fund in consumer goods, technology, financial services and industries such as cement and building materials. Kavuma said some of its first investments were in Tanzania and some of the most attractive opportunities were outside Kenya, the region's biggest economy.

Development institutions, such as the World Bank's International Finance Corporation, accounted for about 70 percent of cash raised for the first fund, and the rest came from individuals, insurance firms, fund of funds and others.

The firm may approach the market to raise a second fund in the next two years, Kavuma said.

Meanwhile, Acre Solutions, a partnership Catalyst has set up with an international property developer, has identified real estate projects and could be seeking investors for some of them in the next month or two, he said.

He said the firm would consider setting up real estate investment trusts (REITs) in future. Kenya's capital markets authority is working to introduce REITs, securities that trade like stocks on the exchange and usually offer investors high yields.

A residential project worth $40 million to $45 million will be its first to market, and the partnership is also working on a mixed commercial, residential and hospitality development in Kenya requiring about $2 billion in investment over 10 years, Kavuma said.

Demand for middle class homes and other housing in east Africa has outstripped supply for decades, and the sector has outperformed other asset classes such as stocks and fixed income.

Catalyst, along with many others, expects the region's growing economies and consumer demand to get a further boost from oil and gas finds, but Kavuma said this would come with a risk that corruption could rise and transparency suffer.

"There is a risk that the pot of gold is so significant that we may go backward on our corruption indices and things like that," he said.

The net effect would still be positive, he said. "I do not think the drag will outweigh the benefit." (editing by Jane Baird)

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