South African PE beats stock market benchmarks

South African private equity grows 20.5% over 10 years

South African private equity grew at a cumulative annual rate of 20.5 percent in the 10 years leading up to 31 March 2015, according to the latest RisCura-South African Venture Capital and Private Equity Association's (SAVCA) South African Private Equity Performance Report.

The alternative asset class outperformed the Johannesburg Stock Exchange's All Share Total Return Index, which had an 18.1 percent growth rate, and the Shareholder Weighted Total Return Index, at 19.1 percent. The Financial and Industrial index delivered 21.6 percent, slightly above the PE rate.

The first quarter's annualised 10-year return for private equity was 20.5 percent, up from the previous quarte's 19.1 percent. In the preceding quarter ending September 2014, the rate was 18.5 percent.

“I think the most interesting things happening in South African private equity are the exits achieved over the past few years, as well as the strong returns achieved by the asset class in quite difficult economic times,” RisCura principal Rory Ord told Private Equity International. “The listed markets here have performed very well in recent years, but have flattened over the past year while PE returns have picked up over this period as a result of some good exits.”

The survey tracks the performance of local South African private equity funds and found that the annual performance in a five-year period leading up to 31 March was 17 percent, surpassing the All Share index rate of 16.1 percent. However, the annual return rate in the three-year period was 15 percent, compared with 19.4 percent for the All Share Total Return Index.

According to SAVCA chief executive Erika van der Merwe, this is attributable to the “locked-in nature” of funds, which typically span more than 10 years, and the private equity investment cycle that takes time to realise returns. She stated the longer-term returns are most reflective of PE performance.

In 2014 private equity investments in South Africa totaled R17.4 billion ($1.39 billion; €1.26 billion), most of which were new, not follow-on. The average deal size for new investments grew to R153 million from R64 million in the previous year, according to the press release for the report.