International investors shying away from private equity in South Africa

South Africa’s private equity market may be attracting the attention of the nation’s biggest fund managers, but international investors are giving it a wide berth put off by lethargic output.

Private equity funds are struggling to raise foreign investment because off assumptions that South Africa doesn’t need development aid and because offshore investors are wary of locking their money in a country experiencing low growth, according to Samantha Pokroy, CEO of Sanari Capital.

“South Africa is middle income only by virtue of averaging,” Pokroy said in an interview. “We have a tremendously unequal society and there’s an enormous developmental need to tackle structural inequalities. Private equity is very well placed to focus on structural inequalities because of the level of influence that we have in the economy, in the businesses that we invest in.”

The International Monetary Fund expects economic expansion of only 0.3% this year, and for growth to remain below 2% until at least 2028, with output held back by record electricity outages and logistical constraints. The focus on the top-line number blinds investors to pockets of growth, Pokroy said.

“Because of the fact that our market is not considered a hot market, there’s actually an enormous amount of untapped opportunities, which are extremely well priced,” she said.

Private equity funds raised R19.6-billion last year, a 22% jump from the previous year, according to the South Africa Venture Capital and Private Equity Association. Only 15% of that was from foreign corporates and other PE funds, the industry body said.

The Sanari 3S Growth Fund raised R1.25-billion rand in fundraising from investors including Africa’s largest asset manager the Public Investment Corp and Alexforbes Investments, which has R450-billion in assets under management and administration. The 10-year fund will have a final fundraising round by May.

Bigger deals

In the first round last year, Sanari received R465-million, which it invested in Edulife Group, a network of private schools, technology company LightWare LiDAR, and biometric verification company Identity.

With the cash infusion, the fund can now book bigger deals both at home and on the continent and is increasing deal sizes to R50-million to R250-million from a cap of R20-million. It seeks portfolio returns of at least 25%.

Interview: SA’s LightWare LiDAR raises R25m for global expansion

The fund’s already targeting four other investments ranging from industrial technology, software and application, to health care and another group of schools with a footprint in nine African countries.  — (c) 2023 Bloomberg LP

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