Private equity has outperformed the FTSE/JSE all share total return index and the FTSE/JSE shareholder weighted total return index over the three-year and five-year reporting periods analysed in the fourth quarter of 2017, says private equity industry body Southern African Venture Capital and Private Equity Association (Savca).
This was stated in the ‘Q4 2017 RisCura Savca Private Equity Performance Report’, which tracks, on a quarterly basis, the performance of a representative sample of South Africa’s private equity funds. RisCura is a global, independent provider of professional investment services.
The report also revealed that the public market equivalent recorded is greater than one against all three listed benchmarks for the three-year period, reflecting positively for the asset class.
“The private equity sector, like many others, experienced a slowdown associated with the political uncertainty and populist narrative of most of the last quarter of 2017. The decrease in pooled internal rate of return (IRR) figures also reflects the cyclical nature of the asset class,” commented Savca CEO Tanya van Lill.
She anticipates potential for an upward swing to be recorded in the first quarter of this year, against the backdrop of renewed, positive political sentiment, a rise in investor confidence and the ability of South African fund managers to weather macroeconomic storms through effective decision-making and value extraction.
This is coupled with government’s continued focus on positioning South Africa as an attractive and viable investment destination, said Van Lill.
Goldman Sachs anticipates that South Africa will be the big emerging market story of this year.
“The impact of such optimistic momentum is expected to translate into a positive outlook for private equity portfolio companies, given the rising investor confidence and the cost of borrowing being on a negative trajectory for the short to medium term,” highlighted Ata Capital CEO Lelo Tantloane.
US dollar IRR declined over the ten-year period, reaching 6.7%. The five-year and three-year IRR increased to 3.9% and 7.7% respectively, up from 2.5% and 7.1% at September 2017.
“The report also noted an improvement in IRR from the 2013 to 2015 vintage funds. Smaller funds, particularly those under the R500-million bracket, continue to outperform larger funds,” RisCura senior private equity analyst Kelsey Tanner pointed out.
Van Lill added that private equity has come a long way in the last 20 to 30 years; the asset class has become more widely known and appreciated by investors.
“Impact investment – addressing socioeconomic issues, while making a solid return – has also gained traction within the sector, as well as the industry’s continued role in contributing to environmental, social and governance measures,” she concluded.