South African private equity funds roar back

Funds under management in South Africa jumped 10.4 percent in 2012 – more than twice as much as in the previous four years combined.

The private equity industry’s total funds under management in South Africa grew 10.4 percent to R126.4 billion ($12.8 billion; €9.5 billion) in 2012, according to new research by KPMG and the South African Venture Capital and Private Equity Association (SAVCA). 

This represents a marked improvement on recent years, the authors said. In the previous four years, funds under management had grown by a combined total of just 4.6 percent.

The report also said that funds raised in South Africa in 2012 were R14.4 billion ($1.5 billion; €1.1 billion). That’s a substantial increase from the R10.7 billion raised in 2011, and not far off the record level of R15.4 billion raised in 2007, when the private equity industry was at its peak.

Much of this success can be ascribed to interest from international investors. While 56.2 percent of the funds were raised from South African sources, that figure is down from 62 percent in 2011. As developed markets have slowed, investors seeking opportunities away from the US and Europe have been drawn to South Africa’s “attractive, sophisticated and low-risk opportunity”, according to SAVCA chief executive Erika van der Merwe. 

Investors who have put money into the industry have received pooled returns of 20.6 percent per annum over a 10-year period, she added. 

And the upswing in activity looks set to continue. Ethos Private Equity successfully closed its Fund VI in the first quarter with a total of $800 million, while the Government Employees Pension Fund recently announced it intends to put R60 billion into private equity in the next few years. “We should see significant investment activity in 2013/2014,” KPMG partner Warren Watkins said in a statement. “We have R35.3 billion available in undrawn commitments. This, together with the current fundraising under way, means we should see the return of the large transactions which were last seen in 2007/2008.”

The only potential cloud appears to be the lack of exit activity, which was substantially lower than the previous year’s levels – R7.0 billion, down from R25.7 billion in 2011 –in line with the global slowdown in M&A activity. 

However, Watkins suggested that better times may be ahead. “Many of the larger funds are maturing and will be required to dispose of their portfolio companies over the next two years,” said Watkins. He added that exits via listings were increasingly “a possibility”.