Covid-19 disrupted private equity market, panel encourages local confidence

3rd September 2021 By: Simone Liedtke - Writer

The Covid-19 pandemic has been one of the largest disruptors to global industries in history and that includes the private equity (PE) market.

That disruption has resulted in practical changes in how fundraising took place over the last year, PE company Actis partner Natalie Kolbe said this week.

“It’s actually very good for the industry in that fundraising has gone online,” she noted, adding that the shift to online was likely to become a permanent one.

Speaking during a panel discussion on September 2, Kolbe said the shift to online may impact on the ability to “build trust”, with face-to-face meetings only expected to happen later in the fundraising process.

Nevertheless, it would, more than likely, continue to condense time constraints from the start to the end of discussions in the industry, she stated.

Further, while the industry may have shifted to largely online discussions, PE firm Agile Capital founder and CEO Tshego Sefolo said fundraising activity was likely to increase, but noted that there were uncertainties about the “quantum of funds” that are to be raised.

“Many more people are trying to raise funds in the market, which, in itself, presents competition. But then, the fact that you know things are being done remotely presents quite a big challenge for most fundraisers,” he commented.

As a result, in contrast to Kolbe’s statement, Sefolo believes fundraising will “take slightly longer” to complete, with more people expected to try to raise more funds.

Kolbe, however, disagreed with Sefolo’s view, saying that, while businesses have had to “pivot” and “take on the challenge of Covid-19” in adapting to the new normal, the pandemic has presented an opportunity for businesses to “leapfrog some of the traditional industries and end up doing better than they had done before”.

“Managers have changed the way they do business. I think that’s going to trickle up into the PE industry, [which means] that we’re going to have to do things differently and look at these sectors differently as well,” Kolbe elaborated.

She emphasised that digitisation was “a theme that is staying and not going anywhere”.

“As [the PE sector], we’re going to have to be nimble and change the way we look at businesses, and back those businesses and their trend, and pick the winners,” she commented.

Sefolo, meanwhile, argued that while digitisation may be the global trend, “South Africa is bucking the trend”.

The country’s challenge, he lamented, was that it struggles to “sell the South African investment case”, which means that funds from international investors are lagging, despite increasing locally.

“The issues in South Africa are very well documented and understood, and unfortunately, investors are looking [this way],” Sefolo said.

As a result, investors are reconsidering where to invest their capital.

Multinational professional services company EY associate director Gergana Ivanova, meanwhile, agreed with Sefolo, noting that South Africa has seen a “definite contraction in the allocation of [international] funds to emerging markets”.

While Africa, and subsequently South Africa, struggled in the fundraising space over 2020 owing to various factors and Covid-19 headwinds, Ivanova noted that investors remain concerned about where their returns are coming from.

Investors are questioning what returns they will receive from investing in Africa, the impact of exchange rates and so on, which Ivanova said all erode returns in the long term.

In contrast, according to Southern Africa Venture Capital and Private Equity Association’s (Savca’s) latest PE survey, “the local investment community from South Africa were the biggest contributors to fundraising seen in 2020”, coming in at about 53% of local funds raised.

While the remaining 47% of investment largely came from Europe and the UK, Ivanova lamented the lack of investment from the US, which “did not come to the party in 2020”, and which is historically, a significant contributor to the market.

“To convince the rest of the world to actually invest in the continent, there needs to be more distance crossed within the continent itself,” she said.

In simpler terms, she noted, Africa would have to invest in Africa first before expecting investments from international investors.

“We need to have confidence in ourselves as a continent first,” she said.