Private equity outperforms listed equity market – Full 2018 Report

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CAPE TOWN – South Africa’s contracted economic growth forecast for 2018 has not affected the performance of the South African private equity industry, which maintains its positive trajectory, demonstrating the asset class continued resilience and ability to deliver returns in challenging local and global market conditions. 

This is according to the latest results of the Q2 2018 RisCura-SAVCA South African Private Equity Performance Report, which tracks the performance of a representative sample of South Africa’s private equity funds.

The quarterly report reveals that private equity continues to outperform listed equity markets across all three listed benchmarks over the 3-year and 5-year periods. The 10-year rand internal rate of return (IRR), the headline return measure, is up to 11.7 percent as of June 2018. 

This is a slight improvement from the 11.5 percent reported in the first quarter of 2018. In addition, the five-year IRR rose to 13.5 percent, from 13.2percent in the first quarter.

Graph (below): Compound Annual Growth Rate

Graph (below): Pooled IRR by time period (ZAR)

“This consistent performance showcases how the industry continues to rise to new levels, amidst downturns and uncertainty,” said Tanya van Lill, chief executive of the Southern African Venture Capital and Private Equity Association (SAVCA). 

“Private equity has once again shown its ability to leverage opportunities introduced by an ever-changing economic landscape, reiterating that there is significant value in the asset class for investors and the economy at large.”

Monwabisi Zikolo, an analyst at RisCura, said: “The general slowdown in listed markets, coupled with the consistently strong performance of private equity, as illustrated by the report, means that there is a strong case for the inclusion of private equity in a diversified portfolio.” 

Zikolo added: “Quarter two’s report also shows that smaller funds continue to outperform larger funds. Performance by fund size data indicated a stable IRR for funds under R500m, along with greatest Total Times Money results. This was largely due to the high ratio of cash returned to investors to total cash invested for smaller funds. Larger funds (over R500m) showed marginal declines in IRR over the quarter.”

The US dollar IRR declined over a 10-year period, reaching 7.3 percent down from 8.4 percent in the first quarter. The five-year and three-year dollar IRRs decreased to 6 percent and 4.1 percent, respectively, down from 6.4 percent and 8.9 percent in the previous quarter. 

These declines were largely attributable to exchange rate movements with the local currency depreciating 16 percent against the US dollar over the quarter (March 2018 to June 2018).

“This report, the upcoming SAVCA Impact Study 2019 and the impact made by the SAVCA Industry Awards winners that were recently announced, are all critical to illustrating and quantifying the impact that the asset class has on GDP growth as well as socio-economic development. 

Considering the presidential push for increased investment in the economy, particularly in infrastructure projects, the private equity industry is well positioned to play an important role in South Africa’s economic stimulus plan and to job creation” Van Lill said.