Southern African Private Equity Continues to Grow
• Outperforms all three listed benchmarks over 3 and 5-year periods
• 10-year internal rate of return improves in Q2
South Africa’s contracted economic growth forecast for 2018 hasn’t affected the performance of the South African private equity industry, which maintains its positive trajectory, demonstrating the asset class’ continued resilience and ability to deliver returns in challenging local and global market conditions. This is according to the latest results of the Q2 2018 RisCura-SAVCA South African Private Equity Performance Report, which tracks the performance of a representative sample of South Africa’s private equity funds.
The quarterly report reveals that private equity continues to outperform listed equity markets across all three listed benchmarks over the 3-year and 5-year periods. The 10-year ZAR internal rate of return (IRR), the headline return measure, is up to 11.7% as of June 2018. This is a slight improvement from the 11.5% reported in Q1 2018. In addition, the 5-year IRR rose to 13.5%, from 13.2% at Q1.
Graph (below): Compound Annual Growth Rate
Graph (below): Pooled IRR by time period (ZAR)
“This consistent performance showcases how the industry continues to rise to new levels, amidst downturns and uncertainty,” comments Tanya van Lill, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA). “Private equity has once again shown its ability to leverage opportunities introduced by an ever-changing economic landscape, reiterating that there is significant value in the asset class for investors and the economy at large.”
Monwabisi Zikolo, an Analyst at RisCura, says, “The general slowdown in listed markets, coupled with the consistently strong performance of private equity, as illustrated by the report, means that there is a strong case for the inclusion of private equity in a diversified portfolio.” Zikolo added “Quarter two’s report also shows that smaller funds continue to outperform larger funds. Performance by fund size data indicated a stable IRR for funds under R500m, along with greatest Total Times Money results. This was largely due to the high ratio of cash returned to investors to total cash invested for smaller funds. Larger funds (over R500m) showed marginal declines in IRR over the quarter.”
The USD IRR declined over a 10-year period, reaching 7.3% down from 8.4% in Q1. The 5-year and 3-year dollar IRRs decreased to 6% and 4.1%, respectively, down from 6.4% and 8.9% in the previous quarter. These declines were largely attributable to exchange rate movements with the local currency depreciating 16% against the US Dollar over the quarter (March 2018 to June 2018).
“This report, the upcoming SAVCA Impact Study 2019 and the impact made by the SAVCA Industry Awards winners that were recently announced, are all critical to illustrating and quantifying the impact that the asset class has on GDP growth as well as socio-economic development. Considering the presidential push for increased investment in the economy, particularly in infrastructure projects, the private equity industry is well positioned to play an important role in South Africa’s economic stimulus plan and to job creation” Van Lill concluded.
Click here to view full report
