SA private equity outperforms listed equity over short and medium term
The latest RisCura-SAVCA South African Private Equity Performance Report shows that private equity investments again outperformed listed equity over the short- and medium-term, as of September 2019.
The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa. SAVCA represents about R165 billion in assets under management through 170 members that form part of the private equity and venture capital ecosystem.
The 2019 third quarter performance report , which tracks a representative basket of private equity funds in South Africa, shows outperformance across all three listed benchmarks over the three-year and five-year periods. Over the 10-year period, private equity underperformed across all three listed benchmarks.
The direct alpha earned by private equity relative to the ALSI TRI, FINDI TRI and the SWIX TRI is 2.9%, 4.0% and 5.4%, respectively, over the three-year period. At Q2 2019, these results were comparable at 1.6%, 4.0% and 4.2%, respectively.
The SAVCA Chief Executive, Tanya van Lill, said that South African private equity has managed to remain resilient despite high volatility and low growth. “We are facing an extremely challenging investment environment as markets around the globe take strain due to Covid-19, however we believe that private equity’s performance will remain favourable relative to the listed market.”
According to the report, the 10-year and three-year ZAR IRRs declined from 9.9% and 7.9% in Q2 2019 to 9.6% and 7.5% in Q3 2019, respectively. The five-year ZAR IRR has remained unchanged at 12.1% in Q3 2019.
The 2007-2008 vintage funds also saw a decline in their performance since last quarter, ending the quarter at an IRR of 8.6%, down from 8.7% in Q2 2019. The 2010-2012 vintage funds reported an IRR of 4.1%, up from 4.0% in Q2 2019. The 2013-2015 vintage funds improved from an IRR of 8.3% in Q2 2019 to 8.6% in Q3 2019.
The USD IRR weakened over the three-year and 10-year periods, reaching 4.3% and 2.0%, respectively, down from 10.3% and 3.0% in Q2 2019. Over the five-year period, however, the USD IRR improved from 5.2% in Q2 2019 to 5.5% in Q3 2019. The reason for the large decline in the USD IRR for the three-year period is due to the ZAR weakening by approximately 10% against the USD over the period from Sep16 to Sep19.
Monwabisi Zikolo, a senior private equity analyst at investment firm RisCura, commented that the prospects for private equity investments remain favourable despite uncertainty in local and global markets. “We expect to see increased capital flowing into sectors such as healthcare and infrastructure, and these investments have demonstrated their ability to generate financial returns, while also providing crucial products and services.”
Caption: Tanya van Lill is the Chief Executive of the Southern African Venture Capital and Private Equity Association.