Thank you for your expression of interest in the African Lions Fund.
I can report that I have drafted a 20-page information memorandum.
It is with the lawyers. Unfortunately, I cannot share it with you, until they have commented and made sure I am not saying something I shouldn’t be. You know what lawyers are like!
Concurrently, we have engaged AMS Law, a specialist financial services law firm in the British Virgin Islands, to draw up the formal legal document. It is called a “Private Placement Memorandum,” (PPM) or “Offering Memorandum” (OM).
I am hoping they will complete this task in the next couple of weeks, and we can then get the ball rolling to set up bank, brokerage, and custody accounts for the fund, and go out to you with a formal invitations to invest.
In the meantime, I would like to share the Investment Framework we will follow.
I alluded to two aspects of it in my article last week about The Aga Khan, and how we will look to co-invest with his Foundation in some of our East African investments.
We apply a stringent selection framework to our investments, which has been honed over many years of prior stock picking and funds management experience.
Macro – does this company operate in a country or jurisdiction we are comfortable with? What are the economic, political, legal, fiscal, monetary and exchange rate risks?
Market – does this company have an addressable market size large enough, and sufficient growth potential that it can conceivably double its business over the next 5 to 10 years?
Model and Moat – does this company have a superior business model, and a sufficiently strong competitive advantage and wide enough moat around its business to sustain its superiority over time?
Money – does the company have a rock solid balance sheet, preferably with no net debt – unless operating in the financial or real estate sectors – which means it can withstand any catastrophe, and live to fight another day?
Management – is the management team ethical and competent; not just in business, but in life? Are they the sorts of people you would do business with privately, on a handshake?
My fellow shareholders – as the Fund Manager, we want to know who else owns a part of the African businesses The African Lions Fund is investing in. If they are controlling shareholders, are their interests aligned with ours, and do they treat minority shareholders fairly and respectfully? Are there enough shares that are not closely held that the company’s stock is sufficiently liquid?
Multiple – does the company’s equity trade at a low enough multiple of earnings, cash flow and book value that it can conceivably trade at double that multiple at some point in the next 5 to 10 years, or at some point over the course of the business cycle?
My exit – we also want to know (before making any investment) under what circumstances we would exit that investment, and how that exit might be accomplished, if not via a liquid market? Our thesis is that liquidity in our target markets will generally improve over time. And as long-term investors that will benefit us.
As soon as I have the offering documents back from the lawyers, you’ll get your next update.
In the meantime, thank you for your patience.
Founder Global Value Hunter, and
African Lions Fund
P.S. After I wrote this letter, I received the first draft of legal offering documents from our lawyers in the British Virgin Islands. It’s looking great, and we’re going full steam ahead.