The latest RisCura–Southern Africa Venture Capital and Private Equity Association (Savca) South African Private Equity Performance Report indicates that propsects for the Southern African private equity industry are “looking up”.

This is on the back of three-year rand internal rate of returns (IRR) having improved from 13.2%, 12.2% and 7% in the fourth quarter of 2018, to 14.5%, 12.8% and 8.2% in the first quarter of this year, respectively.

Tracking the performance of a representative basket of private equity funds in South Africa, the report also shows improved returns for pooled IRR by vintage year, particularly for the newer funds.

The vintage funds across 2013 to 2015 achieved an improvement in their performance, ending the first quarter at an IRR of 8.7%, compared with 8.4% in the fourth quarter of 2018.

Similarly, the vintage funds across 2010 to 2012 reported an IRR of 5.1%, up from 4.3% in the fourth quarter of 2018.

Commenting on these findings, Savca CEO Tanya van Lill said these sustained, positive rand-based returns were testament to the resilience shown by the private equity industry during trying times.

“Amid high levels of market volatility and subdued economic growth, the encouraging performance of South African private equity underscores the returns-boosting role that this asset class can play in a diversified institutional portfolio,” she elaborated.

Dollar-based returns were also encouraging, with the dollar IRR having improved over the five-year and ten-year periods, reaching 5.4% and 12.2%, respectively, up from 4.9% and 10.6% in the fourth quarter of 2018.

Over the three-year period, the dollar IRR declined from 11.2% in the fourth quarter of 2018, to 10% in the first quarter of this year.

Markedly, the performance of South African private equity remains favourable relative to the listed market, Van Lill noted.

“Local private equity continues to outperform the South African listed equity market across all three listed benchmarks over the five- and three-year periods.”

RisCura private equity analyst Monwabisi Zikolo said the sample size of funds was adjusted in the fourth quarter to exclude funds from Zimbabwe, owing to the prevailing economic conditions in that country.

“There was instability relating to the country’s currency and, as such, the decision was taken to exclude funds based, and predominantly investing, in Zimbabwe, until the economic conditions have stabilised,” Zikolo explained.

AFRICA

In a separate statement on Tuesday, the African Private Equity and Venture Capital Association (Avca) released its African Private Equity Data Tracker for the first half of this year, which provides a provisional look at African private equity activity for the period.

The data tracker shows that fundraising in the first half of the year reached $1.7-billion in final closes and $900-million in interim closes. According to the statement, about 70% of the total amount raised from final closes was from sector-specific funds, which indicates “a growing trend for specialization among fund managers, preferring to focus on identifying and valuing opportunities in their areas of expertise”.

The report also reveals that 79 deals were recorded, with a total reported deal value of $700-million in the first half of the year. Moreover, 60% of the total deal value in the first half of the year was from private equity deals below $50-million.

In terms of geographies, South Africa attracted the largest share of private equity deals by volume (28%), followed by North Africa (19%), while multi-regional deals attracted 51% of the deal value.

As with previous years, financials, consumer discretionary, consumer staples and industrials were the highest performing sectors by volume during the first six months, attracting 58% of the total deal volume.

Industrials, consumer staples and healthcare were the top three sectors by value and accounted for almost three-quarters (73%) of the total reported deal value in the first half of the year. The healthcare sector showed an important increase in terms of volume and value, rising to 11% and 12% during the period, up from 8% and 4% in the first half of 2018, respectively.

The report also shows that the total number of reported African private equity exits in the first half of the year stood at 19, with trade buyers being the most common exit route, representing over half (58%) of the total exit volume, followed by private sales at 37%.

Avca chairperson Tokunboh Ishmael said the association continued to see robust and sustained growth in the African private equity ecosystem, which was highlighted by the latest fundraising, deals and exit figures.

In particular, he noted that Africa’s rising middle-class continued to be a key driver of growth for African private equity.

The sentiment is shared by Avca CEO Michelle Kathryn Essomé, who adds that Avca “continues to be encouraged by investors’ interest in and commitment to Africa’s growth”.