South African PE defies public markets slump

Private equity funds posted a 13.6% pooled IRR over the past three years, significantly outperforming listed equity benchmarks.

South African private equity funds have continued to generate consistent returns despite a slump in listed market benchmarks, according to research.

Private equity funds posted a 13.6 percent pooled internal rate of return over the past three years, the Q2 2017 RisCura-SAVCA South African Private Equity Performance Report noted. This is compared with just 3.4 percent for the FTSE/JSE All Share Total Return Index (ALSI TRI), 4.8 percent for the FTSE/JSE Shareholder Weighted Total Return Index (SWIX TRI) and 7.8 percent for the FTSE/JSE Financial and Industrial Index (FINDI TRI).

Fund returns have suffered only a marginal decline from the 13.8 percent pooled IRR recorded over the past decade, while the listed benchmarks each dropped by more than half.

“Although we are observing a continued downward trend in 10-year IRR against the backdrop of a volatile economy, coupled with a decline in investor confidence and political uncertainly, private equity returns compared favourably to all three listed markets over the three-year period,” Tanya van Lill, chief executive of SAVCA, said.

“[Private equity funds] have access to a wide network of business partners and strategic advisors, and actively provide on-the ground support in order to push through necessary changes and shift strategy to meet market requirements.”

Sub-Saharan Africa may be benefiting from an economic upswing, PEI reported in October. The World Bank estimates sub-Saharan GDP growth to have risen to 2.4 percent this year, up from 1.3 percent the previous year. Growth is expected to reach 3.2 percent in 2018 and 3.5 percent in 2019 as commodity prices stabilise and domestic demand continues to increase.

South African realisations reflected a 2x money multiple in 2016, up from the 1.4x reported in 2015, according to SAVCA data.