The performance of this alternative asset class justifies its role in a diversified, institutional portfolio, says SAVCA.
The latest RisCura-SAVCA South African Private Equity Performance Report, for the fourth quarter of 2015, shows that South African private equity outperformed the South African listed equity market over a ten, five-and three-year period to 31 December 2015.
The report, which tracks a representative basket of private equity funds in South Africa, shows private equity returned 18.5% in the ten years from 1 January 2005 to 31 December 2015, compared with the return of 14.1% from the FTSE/JSE All Share Total Return Index (ALSI) over the same period.
The industry outperformed the FTSE/JSE Shareholder Weighted Total Return Index (SWIX TRI), which recorded a 14.7% return over the equivalent ten-year period. Private equity slightly underperformed the FTSE/JSE Financial and Industrial Index (FINDI TRI), which yielded 18.9% over the decade to December 2015.
Private equity returns are measured on a pooled, internal rate-of-return basis and are net of fees.
Over five and three-year periods, private equity funds in this market delivered 14.8% and 15.2% respectively, which compares favourably with the 12.9% and 12.2% recorded by the ALSI over the equivalent periods.
In the case of both listed and unlisted equity, returns measured over all three time periods have edged slightly lower since the previous quarter.
Erika van der Merwe, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), says that, despite the challenging market conditions experienced during the last quarter of 2015, South African private equity continues to deliver robust returns for investors.
Rory Ord, Executive at RisCura, adds that, for the first time, the RisCura-SAVCA South African Private Equity Performance Report is also reporting on annual returns, which enables users to see exactly when private equity over and under performs. “What is clear is that valuations practices have improved significantly in the last 10 years, leading to a more accurate return profile. We hope this will lead to greater understanding of the asset class by investors.”
Van der Merwe continues: “Private equity performance is in line with the healthy deal-making and asset-realisation track record of private equity fund managers operating across the deal-size spectrum in Southern Africa and in sub-Saharan Africa. Backed by this solid performance, managers in the region continue to report success with their capital-raising programmes for newly established funds – and important source of international capital inflows.”
Van der Merwe concludes: “The private equity industry has a strong, 30-year track record in South Africa, with an expanding regional reach across sub-Saharan Africa. The latest returns performance confirms that this alternative asset class has an essential role in a diversified, institutional portfolio. Beyond these numbers – and equally important – is the strong influence that the industry has in ensuring positive, measurable and lasting impact in the portfolio businesses in which it is active.”