South African private equity launches fund in Singapore to back AI

AI Capital Partners, a private equity firm founded by a group of South African businessmen has announced the establishment of an eponymously named fund in Singapore that will invest in firms that are adopting artificial intelligence (AI) in their operations. The AI Capital Fund, which has been re-domiciled in Singapore as a Variable Capital Company (VCC) expects to benefit from the city-state low tax environment and the rapid growth in the implementation and application of data-driven decision-making processes.

Founding partner Michael Jordaan, former CEO of South Africa's First National Bank, explained that the firm's strategy prioritises investing in companies using AI, rather than those building AI tools, as he believes the greatest returns will come from such businesses.

While AI Capital sees numerous opportunities in South Africa, it plans to expand its search for investment prospects across emerging markets, including the rest of Africa as well as in South and Southeast Asia. “You’ve got to have a global orientation when it [comes] to these macro trends,” Jordaan said. 

In determining the fund's domicile, Jordaan explained that the firm considered New York and London but ultimately chose Singapore.  The option of using VCC as a vehicle for investment funds has elevated the city-state’s position as an asset management hub. VCC is a form of legal entity that can be used as a vehicle for investment funds. It elevates Singapore’s value proposition as a competitive asset management hub. 70% of offshore funds sold in Singapore are corporate form funds that are domiciled in foreign locations. A foreign fund can be redomiciled to Singapore as a VCC and can issue shares or bonds.  Liability of members of a VCC is limited to the amount, if any, unpaid on the shares held.  Moreover, a VCC is allowed to freely redeem shares and pay dividends using its capital.  It can be set up as a standalone fund or an umbrella structure with multiple sub-funds. It is treated as a company and a single entity for tax purposes. What makes Singapore even more attractive for funds to domicile is the fact that as VCC they are also eligible for tax exemptions.

This is AI Capital's third fund. Through its previous two funds, it has invested in several companies leveraging AI and technology. These businesses include South African mobile communications provider Rain. Another investment, Optasia, formerly known as Channel VAS, specialises in airtime and data credit provision, utilising AI-enabled credit-scoring algorithms to minimise default rates. Tyme, a hybrid digital bank in South Africa and the Philippines, targets the emerging middle class through mobile and in-store kiosks.

Companies in Africa are increasingly using AI and machine learning (ML) to make their businesses more efficient. For example, Naked, a South African insurtech company, streamlines insurance processes using AI to evaluate customer behaviour and detect fraud. Twiga Foods, a B2B platform in Kenya, connects smallholder farmers to urban retailers and leverages AI and ML to optimise product pricing and assessing shopkeepers' creditworthiness. AgriPredict, a Zambia-based platform, utilises AI and ML to provide farmers with instant information about crop diseases. The platform compares photos of their crops with a large database of crop images, helping to diagnose diseases.

 

References

‘AI helps Naked Insurance get full view of its customers’, ITWeb, 4 March 2020

‘Zambian tech startup building products for farming sector: Talking business with CEO of AgriPredict’, How we made it in Africa, 20 May 2021

‘Twiga Foods Taps Google Cloud to improve food security and reduce waste production in Kenya’, PRNewswire, 11 October 2022

‘AI Capital launches Singapore flagship fund investing in companies leveraging AI for growth’, PR Newswire, 9 March 2023

‘SA grouping launch big AI investment venture, based in Singapore’, CapeTalk, 15 March 2023

‘Portfolio’, AI Capital Partners, Accessed 21 March 2023