The RisCura-Southern African Venture Capital and Private Equity Association (Savca) ‘South African Private Equity Performance’ report for the first quarter of this year shows that long-term private equity returns remain steady, with the ten-year rand internal rate of return (IRR), the headline returns measure, at 11.5% for the first quarter.
This is ahead of the 9.7% achieved by the FSTE/JSE’s All Share Total Return Index for the same period, although slightly down from the 11.6% recorded in the fourth quarter of 2017.
The five-year IRR is 13.2%, a slight improvement on the 13.1% in the fourth quarter of 2017. The three-year IRR return results, however, continue to trend downwards, ending the quarter at 9%.
Stable returns have been observed for pooled IRR by vintage year, particularly for the newer funds. 2010 to 2012 and 2013 to 2015 vintage funds reported IRRs of 5% and 9%, respectively.
The report also highlighted that owing to the high ratio of cash returned to investors to total cash invested, Total Times Money was greatest for funds smaller than R500-million. Accordingly, Total Times Money was smallest for funds over R1-billion.
The performance shows that, as an asset class, private equity has been consistent in its outperformance of listed equity, says Savca CEO Tanya van Lill.
She explained that aspects of resilience, resourcefulness and resoluteness have been demonstrated by the performance of the asset class over a ten-year cycle compared with listed equities.
“Some of the strong performing portfolio companies that have contributed to this great performance will be honoured at the inaugural Savca Industry Awards on November 8,” she noted.
Further, RisCura senior private equity analyst Kelsey Tenner said the report also noted that private equity returns largely remain unchanged, while poor listed market returns, particularly over the three-year period, resulted in an improvement to the public market equivalent results.
“Direct Alpha earned by private equity also increased considerably, especially for the three-year results, when compared to all three listed markets,” she pointed out.
The Direct Alpha earned over the three-year period relative to Swix reached 4.9% at March this year, up from 2.4% at December 2017.
Meanwhile, the recently released Savca 2018 Private Equity Industry Survey showed that investment activity by private equity managers investing in Southern Africa grew by over 102%, from R15.5-billion the previous year to R31-billion and was well above the yearly average of R14.7-billion over the preceding ten years.
Funds returned to investors in 2017 remained strong at R17.6-billion, while Southern African private equity funds raised a total of R7.5-billion during the year.
“Despite a challenging investment environment, there is now, more than ever, great possibilities for growth and renewed interest in investment. The industry is left well positioned to rise to a new level, which aligns to the theme of the Savca 2019 industry conference,” said Van Lill.