Summary
What it does: invests and manages third party investments in Africa.
Elevator pitch: HFP trades at a 50% discount to tangible book value. This is too cheap for a diversified collection of interesting African opportunities plus exposure to the fee streams from managing third party capital. Exposure to the emerging markets fundraising cycle, which is at a 10-year low, is an added bonus.
Mental model: value, potential scaler (read about my mental models here).
Valuation and potential returns: 50% of TBV allows for potential returns of 15-30%.
Exchange and ticker: TSX, HFPC.U
Stock price and market cap: $1.70, $190m.
Do I own it? Yes.
IR website: here.
Tag for finding my other articles on this stock: HFP
About this blog: I have been investing for 25 years, professionally and personally. I look for stocks that have a high probability of compounding at 15% for at least 5 years with limited downside. I write these stocks up on my blog. You can find more about me, my philosophy, my mental models, and my portfolio structure on my site.
Disclaimer: This post is for informational and educational purposes only. Building Arks is not licensed or regulated to provide any financial advisory service and nothing published by Building Arks should be taken as a recommendation to buy or sell securities, relied upon as financial advice, or treated as individual investment advice designed to meet your personal financial needs. You are advised to discuss your personal investment needs and options with qualified financial advisers. Building Arks uses information sources believed to be reliable, but does not guarantee the accuracy of the information in this post. The opinions expressed in this post are those of the publisher and are subject to change without notice. The publisher may or may not hold positions in the securities discussed in this post and may purchase or sell such positions without notice.
Introduction
Helios Fairfax Partners (HFP) is the product of the merger of Helios and Fairfax Africa Holdings - one a leading alternative asset manager, the other a permanent capital vehicle, both focused on Africa. The company combines alternative asset manager fee earnings and carry with permanent capital for investing in some of the youngest, fastest-growing, and capital-constrained economies on earth. As a result of liquidating legacy investments and a downcycle in emerging market fundraising, the stock screens poorly and trades at less than half of book value. But book value has now grown for 5 quarters in a row, newer investments seem to be performing, and the asset manager fee stream may be turning a corner. The company aims to compound book value at 15% and pay asset management profits out as dividends. If it can do this, the returns from today’s discounted price will be excellent.
History
In 2004, Tope Lawani and Babatunde Soyoye founded Helios as an African private equity fund manager. Helios raised its first African PE fund in 2006, and followed this with larger funds in 2009 and 2015.
In 2017, Fairfax Financial Holdings (FFH) launched a permanent capital vehicle for investing in Africa called Fairfax Africa Holdings (FAH). It didn’t work and by 2020 FAH was looking for strategic alternatives. They landed on the idea of merging with Helios. Helios got a permanent capital vehicle and FAH got a share of Helios’ economics.
This looked great on paper but the period from 2020-2024 was a nightmare. Helios liquidated the old FAH portfolio as best they could, but took losses along the way. In addition, covid and its consequences (inflation and rising rates) made it hard to exit investments in legacy Helios funds and raise funds for new ones, meaning significant amounts of carry was lost and management fees went down. Book value per share (BVPS) fell for 7 years in a row, so HFP screens horribly.
However, under the surface, progress was made. By 2024/5 pretty much all of the legacy portfolio had been sold and reinvested in much more promising businesses. And while emerging markets fundraising is still in a downcycle, that cycle will turn, and investments in the fundraising team and in diversifying the product offering show early signs of bearing fruit.
Alignment
FFH owns 30m multiple voting shares and 7.3m subordinate voting shares. That gives them a 35% economic interest and a 53% voting interest. Principal Holdco, which is owned by Lawani and Soyoye, owns 25.5m multiple voters and 24.6m subordinate voters representing a 46% voting and economic interest. The remaining subordinate voters trade on the TSX. These are what we can buy; they represent 19% of the economic interest and virtually no voting power.
Some will view the lack of voting power as a red flag. I don’t, for at least three reasons.
Having controlling shareholders focused on the long term prevents shareholders doing something value-destructive for short term gains (such as winding up the company when it trades at a big discount).
I think having management with skin in the game is more important than having voting control - especially in alternative asset management. Lawani and Soyoye both have the substantial majority of their net worth in HFP stock, per AGM Q&A.
Fairfax has voting control, which creates a balance of power.
Why Africa
Africa has incredible potential, and a reputation for squandering it. This reputation is deserved, but progress is being made. African countries account for 12 of the 20 fastest growing countries in the world in 2025-6. Over the next few decades Africa should be transformed. The investment case is underpinned by robust growth, a rising working-age population, rapid urbanisation, and improving business environments, despite enduring infrastructure and governance gaps.
HFP targets two megatrends. The first is demographics and urbanisation. Africa is staggeringly young, with a median age of about 20. Its working-age population is growing around 3% a year: by 2035 it will be bigger than China’s; by 2050 it will have doubled; and in 2100 Africa will be the only region on earth that has a bigger working-age population than today. In addition, Africa is urbanising. In 2009 Africa had 52 cities with 1m people or more; today, it has over 100; by 2050 it will have 160. The total urban population will double by 2050. This matters economically: urban populations are dramatically more productive than rural ones. Every urban resident needs housing, transport, healthcare, education, food retail, financial services, and connectivity. Urban consumption is also fundamentally different from rural subsistence: it is monetised, formal, and financeable. Africa is creating a large consumer class in economies that remain extraordinarily underserved.
HFP’s second megatrend is technology and innovation. Africa is poor and suffers chronic infrastructure deficits. As a result, customer value is low and the cost to serve is high. In addition Africa has cheap labour but a very high cost of production when you take skills gaps and logistics costs into account. Technology and innovation help solve these problems. Africa is leapfrogging expensive legacy technologies - mobile phones and internet rather than landlines and broadband, household solar rather than vast power generation and transmission networks, e-banking rather than inefficient branches, online skills development rather than poor government schools. Mobile money, pioneered in Kenya with M-PESA and now ubiquitous across East and West Africa, has given hundreds of millions of African adults access to formal financial services for the first time with just a basic mobile phone. And if exports are increasingly digital, Africa’s lack of physical infrastructure will be less important. Helios: “the good thing is that [in just the last 7-10 years] more and more young people are getting into technology and building platforms and coming up with great ideas.” Technology is both driving growth by solving inefficiencies and creating great investment opportunities.
The pushback is governance. Africa is poorly governed. Institutions are weak, economies are overregulated, currencies are unstable. But remember:
Africa is diverse. There are 54 countries, and some are much better than others.
Helios invest in companies, not countries. Companies with reliable counterparties, hard currency revenues, and exposure to multiple countries are more resilient than others.
Things are improving. This is important: money is made when things go from bad to ok. What are the signs of progress? Here are two: a growing number of countries in Africa have regular elections and peaceful transitions of power, and the World Bank says that Sub-Saharan Africa undertook more business environment reforms than any other region from 2010-2020. (Rwanda rose from near the bottom of the Ease of Doing Business ranking to the top 30 over 15 years via a systematic programme of regulatory simplification, e-government, and anti-corruption enforcement, and a landmark long term initiative is the African Continental Free Trade Area, which aims to eliminate intra-Africa tariffs on most goods and services and eventually create a $3.4tn African single market.)
One of Helios’ most successful investments was a telecom tower business in one of Africa’s worst-governed countries, the Democratic Republic of the Congo.
I do not count Africa’s abundance of natural resources as an advantage. In areas with poor governance, natural resources are a curse, encouraging corruption and driving boom-bust cycles. One possible exception is agriculture, which is labour intensive and hard to monopolise, so compared with (say) mining it is better for people and less tempting for corrupt politicians. Africa is blessed with an abundance of farmland and cheap labour. Slowly, slowly it will build the infrastructure to exploit these advantages.
Because Africa’s GDP is tiny and its governance is poor, it receives very little investment. Even compared to other emerging markets there are massive funding gaps for venture capital and private equity. As a result, valuations are low. This will slowly change. As GDP rises, inflation comes under control, currencies stabilise, and local savings grow, financial markets will deepen. This trend has been clear in Latin America over the last 40 years and I think it will happen in Africa over the next 40.
The point of this section is not to persuade you that Africa is the next China. It isn’t. But it has compounded GDP at 4-5% since the late 1990s and I see no reason why it cannot keep that up. If it can, then the living conditions of 2 billion people will be absolutely transformed. Africa’s GDP per capita is $2,000, or $7,000 in purchasing power parity terms. That is roughly the threshold between subsistence and the emerging middle class. In other words, the next decade or two of growth will see more and more Africans able to buy aspirational goods, pay for healthcare, save for the future, and spend on experiences. Nascent markets will become vast and significant companies will be built.
Balance sheet
HFP’s balance sheet splits into 3 broad categories: