South African private equity returns continue to grow, according to a report released by South African Venture Capital and Private Equity Association (SAVCA). This finding comes at the same time the organisation released a report which found that the country’s venture capital industry is worth nearly R2-billion — the highest ever recorded.
The firm, which represents approximately R170-billion in assets under management, found that the local private equity industry delivered a ten-year internal rate of return of 21.7% in June 2015 — an increase over the 20.5% in March 2015 and 19.1% in December 2014.
As noted in a press release sent to Ventureburn, a ten-year measurement period was used for the private equity report. This is due to the long-term nature of the asset class and the lock-in nature of typical funding structures. The returns were South African Rand-based and do not include net of fees and expenses.
To put this growth into perspective, the report found that private equity out-performed other key JSE equity returns, such as the Shareholder Weighted Total Return Index (SWIX) at 18.1%, and the Financial and Industrial Index (FINDI) at 21%.
“Institutional investors remain on the lookout for reliable sources of long-term yield,” says CEO of SAVCA Erika van der Merwe, “Moreover, there is growing awareness of the importance of finding suitable platforms to achieve portfolio diversification as a hedge against risk and uncertainty.”
Van der Merwe added that this latest report confirms that private equity has the characteristics that would build these elements into a long-term institutional portfolio.
According to van der Merwe, the increase in private equity performance is due to distributions — the return of capital to investors into funds — which outweighs draw downs — calls on the committed capital of the investor, require for specific investments:
This trend of a net return of capital to investors has been evident over the past year, and is reflective of many funds reaching the end of their ten-year life. It also coincides with ideal market conditions for realisations – the sale of underlying assets held in a fund – at attractive market prices.
An executive at RisCura, Rory Ord, adds that prospects for investments are remaining positive: “Private equity is a long-term asset class; investments by the industry will benefit from the return to global trend growth over the medium term, as well as from any commodity recovery, which in turn would result in the rand stabilising and in domestic economic growth recovering.
“Additionally, listed equity markets are currently highly priced and investors are reducing their return expectations. Conditions in listed markets are therefore improving the relative case for private equity to offer superior returns,” he concludes.
The full report can be downloaded from the SAVCA website.
Image by Chris Potter via Flickr.