The Southern African private equity industry invested R31.3-billion in 2017, which represents an increase of 102% on the R15.5-billion invested in the previous year and well above the yearly average of R14.7-billion a year invested over the preceding ten years.
Further, South Africa’s private equity capital penetration rose to 0.7% of gross domestic product in 2017, which is sizable when compared with that of other developing economies.
The Southern African Venture Capital and Private Equity Association (Savca), along with its research partner Deloitte, surveyed 47 fund managers representing a total of 80 funds, all with the mandate to invest in Southern Africa and other select African markets, for the Savca ‘2018 Private Equity Industry’ survey.
“The industry exhibited characteristics of resilience, resourcefulness and resoluteness in the past year. It delivered a ten-year internal rate of return (IRR) of 11.6% compared to the 10.7% from the JSE Alsi TRI over the same period. This shows that, as an asset class, private equity has been consistent in its outperformance of listed equity,” Savca CEO Tanya van Lill said in a statement.
The research showed that Southern Africa’s private equity industry, which is made up of both government and private funds, had R158.6-billion in funds under management as at December 31, 2017.
This represents a compound annual growth rate of 9.4% since 1999, when Savca first began collecting industry data for the annual survey.
The Southern African private equity industry raised R7.5-billion in 2017, a decrease from the R10.2-billion raised by the industry in 2016. Of the R7.5-billion raised, R3.7-billion, or 49.9%, came from South African sources; this is a decline from the 73.5% that was sourced from South Africa in 2016.
Van Lill attributed the decrease to the cyclical downturn in fundraising activity, which was likely exacerbated by the challenging economic and political environment in South Africa in 2017.
“This resulted in the decrease in the amount of capital raised by the industry. The private equity life cycle means that focus periodically shifts from the fundraising mandate, investment and finally the realisation of returns. The focus for this period was certainly on deploying investment funds,” she said.
There were 69 disposals during 2017 totalling R10.5-billion, with the funds returned to investors during the year amounting to R17.6-billion.
In contrast, the yearly average funds returned to investors over the preceding five years was R10.9-billion, with disposals averaging R6.8-billion over the 2012 to 2016 period.
The most popular disposals, in value terms, were sales to other private equity firms or financial institutions.
By volume, the most popular method of disposal was sales to management.
“The significant increase in the amount invested reveals the industry’s resourcefulness, which was required to achieve those figures in a challenging investment environment. This resourcefulness is further confirmed by the increase in the total number of investments which went up from the 574 in 2016 to 750 in 2017,” she said.