Africa Wants More Private Equity, Investors Want Better Safeguards

In The Myth of Private Equity, Professor Jeffrey Hooke argues that private equity’s prominence is not due to performance alone, but is protected by a self-reinforcing “ecosystem” of interests. An overlapping network of investors, managers, consultants, regulators, and media. Hooke’s claim is blunt: if this protective umbrella were removed, the asset class would shrink dramatically or even collapse.

Whether you agree with him or not, his analysis offers insight into how industry structure, not just strategy, has sustained private equity’s rise to a $12 trillion asset class.

The Five Layers of the Protection Ecosystem

1. Institutional Oversight Gaps

Hooke points out that while institutional investment boards are often composed of accomplished individuals, they are rarely investment professionals. Many are political appointees with limited tenures. This lack of deep investment expertise allows high fees, neutral net returns, and misaligned incentives to persist without challenge. These boards are tasked with protecting beneficiary interests, but often default to established norms rather than scrutinize them.

2. Incentives for Internal Managers

Institutional fund managers are among the best paid in the public sector, often earning over $2 million per year. Allocating to private equity complicates benchmarking and obscures underperformance. Because private equity valuations are not marked to market, returns appear smoother and less volatile, masking risk. This benefits managers whose compensation may be influenced by perceived portfolio stability.

3. Consultant Fee Structures

Consultants earn more by advising on alternative investments than recommending traditional assets. The complexity of private equity provides cover for justifying higher fees. Because fund performance is typically realized years after commitment, it can take a decade before poor advice is exposed. This misalignment leaves investors vulnerable to delayed disappointment.

4. Limited Regulatory Scrutiny

Private equity remains lightly regulated relative to its size. Advocates argue that its investors are sophisticated and that public markets are not involved. Critics counter that the industry's extensive lobbying and campaign contributions create a favorable regulatory environment. According to OpenSecrets, private equity firms spent over $80 million on lobbying in the U.S. between 2020 and 2023.

5. Media Complicity

Financial media rarely applies scrutiny to the private equity industry. Instead, it tends to amplify success stories, including multi-billion-dollar fund closes, and high-profile acquisitions. Meanwhile ignoring performance transparency or governance issues. The industry's advertising clout and partial ownership of communications firms further blurs the line between reporting and promotion.

[WATCH] PROFESSOR HOOKE DESCRIBE THE MYTH OF PRIVATE EQUITY RETURNS

Real Estate Adds Complexity

Real estate private equity, a growing sub-sector, brings additional risks and structural challenges that extend beyond those Hooke outlines.

1. Pressure to Chase Risk

Real estate PE managers often pursue development risk, over-leverage projects, or hold properties beyond reason in hopes of hitting aggressive return targets. This behavior is sometimes necessary to earn performance fees tied to “black swan” outcomes. Data from Preqin suggests that only 35% of real estate PE funds launched before 2010 delivered net IRRs above 12%, underscoring the difficulty of consistent outperformance.

2. Illiquidity and Lack of Transparency

Private equity real estate investments are typically designed to return capital in 7 to 10 years. In practice, many assets remain unsold, and are instead swapped for shares in other entities at opaque valuations. One 2022 academic study found that as many as 45% of real estate assets in older vintage PE funds were never exited through a market-based sale. Many of these “zombie” assets are eventually sold at 20–40% discounts, eroding investor returns.

3. Displacement of Local Investment Models

Historically, real estate development was locally funded, with capital sourced from regional banks and local high-net-worth investors. Private equity introduced scale and professionalism, but also displaced community-driven investment. Today, many local investors are allocated to national funds, drawn in by polished decks, pedigree, and diversification promises—often at the cost of proximity, transparency, and control.

Application to Africa

These issues are magnified in emerging markets like Africa and Latin America:

• Return expectations are higher, driven by perceived risk, pressuring managers to take on more aggressive strategies.

• Debt financing is scarce and expensive, limiting the traditional leverage strategies that underpin equity returns in mature markets.

• Exits are rarer, especially for large-scale projects, creating liquidity challenges for both managers and LPs.

• Deployment timelines often mismatch market pace, with the standard 3-year investment period clashing with slower deal-making environments where patience yields better outcomes.

Not All Negative

Despite valid critiques, private equity has brought important structural improvements. The fund model can align interests more effectively than legacy institutional arrangements, and pooling capital enables execution at a scale previously unattainable for most investors.

Many of the industry’s flaws (i.e., overreach, opacity, or excess) stem from misalignment and weak regulation rather than bad actors. Some of the most ethical and capable professionals in finance work in private equity, and they have contributed meaningfully to the development of real estate and infrastructure globally.