Ethos launches R1 billion South African AI fund

The fund targets R1 billion worth of investments.

Private equity investment firm Ethos Capital has launched a new fund that is targeting R1 billion worth of investments in South Africa-based artificial intelligence (AI) companies.

Ethos announced the first two investments by its maiden AI fund, Ethos AI Fund I, valued by R600 million. The investments were made in two companies, Channel VAS and Vertice MedTech Group.

Channel VAS is a fintech player that “deploys algorithmic decision-making technology”, while Vertice seeks to disrupt the medical technology value chain by “leveraging AI to enable smarter decision making”.

According to Ethos Capital, its AI fund is the first of its kind in South Africa.

The fund has been established in partnership with Nic Kohler and Roger Grobler, both former insurance industry CEOs with extensive experience in actuarial science.

Stuart MacKenzie, Ethos CEO, said the AI fund is part of Ethos’ “ongoing evolution into alternative assets.”

“This fund will co-invest alongside other Ethos-managed Funds, originate proprietary investments, and is expected to generate differentiated value for our investors by helping our portfolio companies to navigate and benefit from artificial intelligence,” said Stuart in a statement.

Roger said the AI Fund’s aim is to identify and invest in businesses which will benefit disproportionately from artificial intelligence – specifically algorithmic decision making. 

“These algorithms typically help companies make high-frequency decisions in multiple places along the value chain.  As these decisions are not ideally suited to human capabilities – typically due to computational complexity and volume of data utilised – the use of algorithms releases intellectual capacity, allowing people to focus on other rewarding areas of work, such as creativity, relationships, strategy or communication,” said Roger.

Ethos – historically known for its large buyout funds – has been successfully attracting capital to a number of specialist fund offerings, raising about R4.5 billion in the past 24 months from institutional and development investors.

A breakdown of the R4.5 billion raised include R2.5 billion for Ethos Mid-Market Fund I; over US$100-million in the first close of Ethos Mezzanine Partners 3, which is targeting $150-million by mid-2019; and R600-million in first-close commitments to AI Fund.

“The Ethos AI Fund is unique in the region and puts us at the leading edge of an exciting secular growth theme.  Artificial Intelligence technology is developing rapidly and is of deep strategic interest to us given its potential to drive the economic fortunes of nations,” said Stuart.