From 2014 through 2016, as little as $75million in stock was traded per day across the continent. An efficient fund manager could have participated in 5% of that daily trade; about a $4m maximum in trades a day.
This limitation was more relevant for larger funds of $1billion. In reality, the fund managers were only physically able to trade 0.5% of their funds per day. As a result, it could take anywhere between 200 and 300 days to rotate or liquidate an entire fund.
Considering this risk, it’s startling to note that most listed equity funds operating in Africa today still have redemption terms shorter than fortnightly and, in many cases, daily. The risk of investing in a fund with anything less than quarterly liquidity is significant.
Over time, benchmark-cognisant managers tend to run portfolios that resemble the MSCI Africa; the 35 largest and most liquid stocks out of a universe of over 1200. And so closet index managers tend to underperform their peers, often markedly, since Africa investing is very much a stock-picker’s paradise.