SA private equity performance remains steady

Tanya van Lill, CEO of SAVCA.

Private Equity outperforms its listed counterparts over a 10-year period.

The latest - RisCura-SAVCA South African Private Equity Performance Report, for the first quarter (Q1) of 2018 shows that long term private equity returns remain steady. The 10-year ZAR Internal Rate of Return (IRR), the headline returns measure, is 11.5% for Q1 of 2018, slightly down from the 11.6% at Q4 of 2017. Encouragingly, this is ahead of the 9.7% achieved by FTSE/JSE All Share Total Return Index (ALSI TRI) for the same period. The 5-year IRR is 13.2%, a minor improvement from the 13.1% at Q4 of 2017. The 3-year IRR return results, however, continue to trend downwards, ending the quarter at 9%.

Graph (below): Compound Annual Growth Rate (ZAR)

Graph (below): Pooled IRR by time period (ZAR)

Stable returns have been observed for pooled IRR by vintage year, particularly for the newer funds. 2010-2012 and 2013-2015 vintage funds reported IRR of 5% and 9%, respectively. At Q4 2017, these results were comparable at 5.1% and 9%, respectively.

The report also highlighted that because of the high ratio of cash returned to investors to total cash invested, Total Times Money was greatest for funds smaller than R500m. Accordingly, Total Times Money was smallest for funds over R1bn.

Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), says that the performance shows that, as an asset class, private equity has been consistent in its outperformance of listed equity. “Aspects of resilience, resourcefulness and resoluteness have been demonstrated by the performance of the asset class over a ten-year cycle compared with listed equities. Some of the strong performing portfolio companies that have contributed to this great performance will be honoured at the inaugural SAVCA Industry Awards on the 8th of November 2018,” she says.

Kelsey Tanner, Senior Private Equity Analyst, at RisCura, states, “The report also noted that while PE returns largely remained unchanged, poor listed market returns, particularly over the 3-year period, resulted in an improvement to the public market equivalent results. Direct Alpha earned by private equity also increased considerably, especially for the 3-year results, when compared to all three listed markets”

The Direct Alpha earned over the 3-year period relative to SWIX reached 4.9% at March 2018, up from 2.4% at December 2017.

The recently released SAVCA 2018 Private Equity Industry Survey showed that investment activity by private equity managers investing in Southern Africa grew by over 102%, from R15.5 billion the previous year to R31 billion and was well above the annual average of R14.7 billion over the preceding 10 years. Funds returned to investors in 2017 remained strong at R17.6 billion, while Southern African private equity funds raised a total of R7.5 billion during the year.

“Despite a challenging investment environment, there is now, more than ever, great possibilities for growth and renewed interest in investment. The industry is left well positioned to rise to a new level – which aligns to the theme of the SAVCA 2019 Industry Conference. This is a theme I believe will play out well for the sector for the remainder of 2018 and beyond, given the benefits of this long-term investment vehicle,” van Lill concluded.