The local private equity industry added 10.4% to its total funds under management in 2012, closing the year at R126.4-billion and surpassing the previous four years’ combined cumulative growth of 4.6%.

This is according to the yearly Venture Capital and Private Equity Industry Performance Survey of South Africa, conducted by auditing firm KPMG and the South African Venture Capital and Private Equity Association (Savca), which Savca CEO Erika van der Merwe said revealed a “reignited” industry.

“This year’s survey reflects an industry on the move, driven by a revitalised global investor appetite and beckoning opportunity in the African and South African markets,” she said at the release of the report on Wednesday.

Private equity funds raised during the financial year equated to R14.4-billion, up from R10.7-billion in 2011 and “not far” from the record level of R15.4-billion achieved in 2007, the historical peak of the private equity industry.

“Large amounts of cash in developed markets – the US and Europe, in particular – are in search of growth assets that are not apparent in their own domestic markets. South African private equity managers, therefore, present an attractive, sophisticated and low-risk opportunity for these investors,” added KPMG partner Warren Watkins.

A further indication of increased activity in the South African private equity industry was the announcement by the Government Employees Pension Fund (GEPF) that it intended to invest up to R60-billion in private equity in the near future.

“This further signifies that the industry is again on the move”, said Watkins.

The report also showed that the private equity industry had further entrenched and facilitated black economic empowerment through both the management companies and their portfolio investments, with investments classified as nonempowered accounting for only 25.2% of the industry’s total funds under management.

In addition, 56.2% of the total funds raised were from South African sources, which Watkins believed indicated that the country remained an attractive investment destination, even for local funds.

“The pooled returns for the industry of 20.6% over ten years exceed those of most mature markets, with the private equity market also proving to be far more stable than the listed market,” he commented.

While investments of R10.6-billion in 2012 were down from the R16.5-billion in 2011, significant investment activity was expected in 2013/14, as R35.3-billion remained available in undrawn commitments.

The survey further revealed that several significant funds were “on the fundraising trail”, citing fund manager Ethos’ successful closure of its $800-million Fund VI in the first quarter of the year.

“The extent of current fundraising under way means that we should see a return of larger transactions last seen in 2007 and 2008,” said Watkins.

As in the past, the report shows that a large portion of private equity investments were made into existing companies that had expanded into Africa, the bulk of which was injected into the infrastructure sector.

While exits in 2012 were significantly reduced to R7-billion, from R25.7-billion in 2011, the report expected increased exits through listings, as several larger funds matured and disposed of their portfolio companies in the next two years.

“The life cycle of the South African private equity industry, being the raising of funds, the acquisition of companies, and their ultimate disposal, is in motion again after three years of near dormancy,” Watkins said.

This had come amid an increase in private equity regulation, most significantly related to tax issues, which he believed would affect the way in which deals were structured in relation to offshore debt.

Now in its thirteenth year, the survey represents over 90% of total South African private equity funds by value.