Returns On SA Private Equity Outperformed JSE-Listed Shares, Report Says

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Written by Dana Sanchez

Investors are always looking for returns, and they’re increasingly exploring the sub-Saharan African private equity market — one of the world’s fastest-growing consumer markets — according to the Southern African Venture Capital and Private Equity Association.

Private equity is still underrepresented in Sub-Saharan Africa, said Erika van der Merwe, CEO of the association (SAVCA), in a prepared statement. The 140-member association promotes Southern Africa private equity by engaging with regulators and legislators, providing research, training and networking for industry players.

Private equity presents an opportunity for investors to invest in a region that is experiencing strong economic growth and generating robust returns, Van der Merwe said.

Eighty percent of investors who responded to the 2014 RisCura, AVCA, SAVCA 2014 Search for Returns survey said they expect African private equity to outperform African listed equity over the coming decade.

Cape Town-based RisCura provides advice, analysis and reporting for asset owners, investment managers, hedge funds, private equity firms and brokers.

The U.K.-based African Private Equity and Venture Capital Association (AVCA) is a pan-African industry body that promotes private investment in Africa.

The survey polled 48 companies on four continents that have received private equity funds. These included pension funds, insurance companies, sovereign wealth funds, banks, asset managers, endowments, foundations, family businesses, and development finance institutions. These institutional investors collectively represent global private equity assets under management of nearly US$150 billion, according to RisCura.

South African private equity in particular has delivered healthy returns for investors, Van der Merwe said. The industry has a 30-year track record of deal making, exits and fundraising, and is expanding regional reach. It will play an important role in the continued growth of the asset class in other African markets, she said.

By mid 2015, the South African private equity industry delivered a 10-year internal rate of return of 21.7 percent, up from 20.5 percent in March 2015, according to the latest RisCura-SAVCA South African Private Equity Performance Report. This compares with the 17.1 percent return from the The Financial Times Stock Exchange/Johannesburg Stock Exchange All Share Total Return Index ( FTSE/JSE ALSI) over the same 10 years.

The internal rate of return is often used by corporations to compare and decide between capital projects, according to Investopedia.

The South African private equity industry represents more than 170 billion rand ($11.086 billion US) in assets under management, and it’s maturing, Van der Merwe said. “This is demonstrated by the emergence of specialist funds dedicated to focused sectors, as well as by the trend towards the establishment of funds with a multi-country focus, with many new South African-managed funds now having a mandate to invest outside South Africa. Both of these factors are characteristics of a more developed industry.”

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South Africa also has a proven track record in exits, and has demonstrated to investors a range of viable exit options in the market – and thus a way to realize returns. “With this track record, and the ability to attract funds from institutional investors from across the globe, the industry is becoming a notable role player in drawing capital into the broader sub-Saharan Africa region,” Van der Merwe said.

“South African private equity fund managers are deploying capital for deals in Southern, West and East Africa, for instance, and moreover are providing the strategic, financial and operational support to their South African-based portfolio companies to expand into new African jurisdictions.”

Private equity will play an increasing role in funding infrastructure on the continent, Van der Merwe said.

“By partnering in capital-rich projects ranging from power plants, renewable energy and water infrastructure, private equity is helping to boost productive capacity and economic potential. Further, on a continent where capital markets are still in the early stages of development, private equity is an important source of capital and of strategic guidance to small, medium-sized as well as large businesses, across industry sectors.”

The further development of African private equity will benefit African economies and businesses from a governance perspective, Van der Merwe said.

The SAVCA-DBSA Economic Impact Study 2014 showed that private equity drives good corporate governance; 70 percent of respondents said that this was a key value addition from their private equity partners. Private equity is valued for its strategic guidance, according to 62 percent of respondents. Survey respondents also said that businesses reported employment gains of 40 percent on average during private equity partnership, according to the statement.


About Dana Sanchez

Dana Sanchez was born in South Africa and is a U.S. citizen. After working in advertising, she went back to school and earned a master's degree in journalism from the University of South Florida. As a business writer, she won regional and national writing awards. As editor of a daily newspaper, she coordinated staff writers, freelancers and photographers in the fast-paced environment of daily news. Dana was an editor at Moguldom Media Group for four years, helping to build and manage a team of staff and freelance writers. She works now on Moguldom.com for Nubai Ventures. A long-distance hiker and cyclist, she writes about the business of technology.