Tokenisation: Unlocking Africa’s Private Equity Potential

Adaptability has long been a key skill for managers in the global alternative funds space. In recent years, volatile market conditions, shifting investor appetite, regulatory change and geopolitics have all required fund managers – including those in Africa – to demonstrate that they are adept at adjusting their sails.

But change has, by and large, been incremental, rather than seismic. Now, the established norms in the private equity sector are being challenged like never before – on multiple fronts and at pace.

The concept of tokenisation is at the heart of this shift and looks set to play an increasingly important role in shaping the future of the African private equity landscape. It’s something that is explored at a global level in a report recently published by Jersey Finance, which makes the case for tokenisation transforming the private equity and wider alternative funds space over the coming years.

Within the African market, the impact of tokenisation on fund managers and more widely across the economy is set to be significant. If managers take action now, then there are some exciting opportunities on the horizon.

Managers globally will testify that asset raising is no longer as straightforward as it once was. After 15 years of growth, many private equity managers are facing more challenging conditions than they are accustomed to.

This environment has prompted many managers, including those in Africa, to diversify away from their traditional institutional investor base and look to new audiences – including family offices and the broader high-net worth market, who remain under-allocated to the sector.

Globally, for instance, individual investors control approximately 50% of the $295tn in global AUM (Bain’s Global Private Equity Report, 2024) – yet account for only 16% of AUM managed by alternative investment managers. However, 53% plan to raise their allocations to the alternatives sector over the next three years.

There is clear mutual benefit for managers and investors here – on the one hand, many private asset managers are needing to diversify their investor base away from their traditional reliance on large institutional investors; on the other, there is a growing desire amongst high-net worth investors to increase their allocations to private market assets.

There are challenges to this. Accessing alternatives can be opaque, cumbersome and costly. In addition, there is a reliance on advisors and relationships to source deals and there can be challenging minimum investment levels for private and family office investors.

The rise of blockchain technology and tokenisation seeks to provide a solution to this, enabling managers to access a broader investor base.

The application of tokenisation in an African private equity context can bring multiple benefits. First and foremost, it can help to break down existing barriers for both managers in Africa looking to broaden their investor base, and investors looking to tap into African asset manager products.

Breaking down assets into tokenised units enables fractional ownership so investors can participate in asset ownership and gain exposure to markets that were previously inaccessible. This can offer improved liquidity, enhanced transparency and control over allocations, increased economic efficiency by lowering transaction costs, more streamlined asset management, and enhanced market liquidity.

This is particularly significant in high-value investments such as real estate, private equity and infrastructure. Real assets backed by blockchain technology, for example, can be securely traded, tracked and owned, and can greatly aid liquidity and transparency, whilst also substantially reducing minimum investment levels.

More widely and long-term, by democratising access to investment opportunities, tokenisation can unlock new funding opportunities, contribute to enhanced financial inclusion and wealth distribution, and encourage economic growth and stability, which is critical to Africa’s sustainable growth prospects.

Enabling investors, both local and international, to participate in African fund strategies through tokenisation can provide much-needed capital to fuel the expansion plans of African businesses and provide a much-needed boost to African infrastructure development.

Hurdles still exist – regulatory uncertainty is still perceived to be a major obstacle, for example, with EY Parthenon research suggesting that 24% of high-net worth investors identify regulatory uncertainty as a significant challenge.

Nevertheless, tokenisation stands to make a significant impact on Africa’s private markets landscape. Total tokenised market capitalisation is forecast to reach around $2 trillion by 2030 (McKinsey, 2024), for instance, giving some indication of the scale of opportunity.

And the signs in Africa specifically are good – a report by PwC highlights that the tokenisation market in Africa is expected to reach US$100 billion by the end of this year, whilst the African Development Bank has launched a US$10 million fund to support the development of blockchain and tokenisation projects in Africa.

The rise of tokenisation within the alternatives landscape means that, over the coming years, African fund managers will be able to bring new products to new investor markets like never before.

Domiciles like Jersey are ready to support this transition, providing the certainty, digital environment and progressive regulatory frameworks African managers need to meet investor needs. For its part, Jersey has a strong track-record in hosting vibrant and respected digital assets businesses over a number of years.

The Island’s world-class digital infrastructure, pragmatic approach to regulation and its broad range of corporate vehicles has been critical to this growth – and last year the jurisdiction’s financial services regulator published updated guidance on the tokenisation of real world assets and ICOs, providing further clarity for market participants and asserting Jersey’s forward-looking stance in this area.

The ramifications for managers are clear – they must ensure they are ahead of the curve in having the right tools, skills and strategy to seize the opportunities this new era can offer. Tokenisation has the capacity to unlock African’s private equity potential – and at the mid-point of this decade, the outlook for the African private equity sector has never looked more promising.

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