In the face of high market volatility and lagging economic growth, the latest RisCura-Southern African Venture Capital and Private Equity Association (Savca) ‘Private Equity Performance Report’ revealed that the South African private equity industry outperformed listed equity over the short- and medium term, as of June.
The second-quarter report, which tracks a representative basket of private equity funds in South Africa, showed outperformance across all three listed benchmarks over the three-year and five-year periods.
However, over the ten-year period, private equity underperformed across all three listed benchmarks.
Savca CEO Tanya van Lill said that, despite the persisting low-return environment, South African private equity had managed to remain resilient for the most part.
“The investment environment continues to be extremely challenging, but private equity’s performance relative to the listed market remains favourable. This sustained outperformance demonstrates the value that the private equity asset class is able to bring to a portfolio amid extreme market volatility and lagging economic growth,” she elaborated.
According to the report, the ten-year, five-year and three-year South African rand internal rate of return (IRR) declined from 11.5%, 13% and 8.3% in the first quarter of 2019 to 9.9%, 12.1% and 7.9% in the second quarter of 2019, respectively.
The vintage funds of 2013 to 2015 also saw a decline in their performance since last quarter, ending the quarter at an IRR of 8.3%, compared with 8.7% in the first quarter of 2019. The vintage funds of 2010 to 2012 reported an IRR of 4%, down from 5.1% in the first quarter.
Similarly, the dollar IRR weakened over the five-year and ten-year periods, reaching 5.2% and 3%, respectively, down from 5.6% and 6.1% in the first quarter. Over the three-year period, however, the dollar IRR improved from 10.1% in the first quarter of 2019 to 10.3% in the second quarter of 2019.
Despite the sluggish level of national growth being exhibited, Van Lill believes certain industries in South Africa remain ripe with opportunity for private equity capital.
“We continue to see a lot of capital flowing into healthcare, education and infrastructure. Importantly, in addition to generating financial returns for investors, these investments also provide essential products and services,” she concluded.