BRICS bullish about private equity activity

The turbulence of the global economy notwithstanding, 72% of BRICS countries believe investment activity in the private equity sector will rise, reveals Grant Thornton in a report released .

The report is based on interviews with private equity professionals across the world and shows how the private equity industry has transformed in the face of increased uncertainty in the financial sector.

Globally, nearly two thirds of those surveyed believe investment activity will increase over the coming year. Western Europe is the least optimistic with only 50% expecting investment activity to increase.

In the BRICS group, Brazil is the most optimistic while expectations in South Africa are slightly more subdued, says David Paropoulos, Corporate Finance director at Grant Thornton Johannesburg. “This sentiment is attributed to the more established nature of the buyout market in South Africa. Nonetheless, notable activity is expected in the country.”

Paropoulos adds that South Africa is seen by many private equity investors as a gateway into the rest of Africa and as such, strong private companies are being sought with a strategic African expansion plan in mind.

“We expect a sizeable level of activity in the local equity market in the next few years,” he says.

In South Africa 67% of respondents expect an increase in exit activity from private equity investments, while 33% expect it to stay the same. Brazil and Russia are the only countries that are more optimistic about exit activity than South Africa, with respectively 71% and 100% expecting a rise.

Regarding challenges for private equity, BRICS countries view regulatory matters as the biggest hurdle facing the market. According to the report, the rapid growth of the private equity sector also attracts more attention from financial regulators who want to ensure controlled growth. In addition to this, high levels of competition and a shortage of talent are other challenges in these markets.

The report also reveals a tough environment for fundraising. Globally, there is more negativity than positivity about the outlook (46% vs. 28%), with 13% feeling very negative. The negativity is particularly acute in developed markets including Western Europe (47% negative vs. 20% positive) and North America (48% negative vs. 26% positive).