The latest Q3 2018 RisCura-SAVCA South African Private Equity Performance Report indicates that private equity’s performance relative to the listed market remains favourable, with outperformance across all three listed benchmarks over the three-year and five-year periods. This performance is detailed in the recently released quarterly report, which tracks the performance of a representative sample of South Africa’s private equity funds and evaluates them against listed equity benchmarks.
The Q3 report also found that the 2013-2015 vintage funds increased their performance to an internal rate of return (IRR) of 12% at the end of the quarter compared to 7.1 % in the same period in the previous year (Q3 2017). The 2010-2012 vintage funds recorded an IRR of 5.8%, up from the 5.6% in Q2 2018, but down from 7.1% in Q3 2017. Other important highlights include a marginal improvement in the headline return measure, the 10-year ZAR IRR, at 11.8% up from 11.7% in Q2 2018. The five-year IRR is 12.9%, down from 13.5% in the previous period. Curbing what seemed a downward trend, the three-year IRR return results have improved, ending the quarter at 9.7%, up from 8.5% in Q2 2018 and 9% in Q1 2018.
“Southern African private equity continues to grow, and the substantial outperformance of listed equities over the three and five-year periods as well as the growth in the 10-year ZAR IRR, shows that the industry is in a healthy place and well-positioned to maintain the upward momentum,” commented Tanya van Lill, SAVCA CEO, off the back of the successful annual Private Equity and Venture Capital Conference. “The performance is even more impressive when considering the generally depressed economic conditions during the reporting period.”
The were some changes to the sample used for this period, as highlighted by Monwabisi Zikolo, a private equity analyst at RisCura “The sample of funds for the performance measurement by fund size data was modified. Funds with a vintage before 2004 were operating under vastly different macroeconomic conditions. As such, the pooled performance was skewed upward towards the older funds.” He further noted that “These funds have since been removed from the sample.”
The report further revealed that in Q3 2018, smaller funds continue to outperform larger funds. Additionally, over the 10-year period, and given tough economic conditions private equity underperformed the ALSI TRI, FTSE/JSE Financials (FINDI TRI) and SWIX TRI. The USD IRR improved over the 10-year and the three-year periods, reaching 7.9% and 9.3%, respectively, up from 7.3% and 4.1% in Q2 2018. The five-year USD IRR decreased to 5.1% from 6% at June 2018.
“Private equity is a great asset class through which to fund key investment opportunities in South Africa and there is an increased expectation for the private equity industry to continue to contribute to the President’s call for investment in the economy. Judging by the performance recorded in Q3 2018, the industry is ready to rise to the occasion,” concluded van Lill.
In the recent 2018 Deloitte Private Equity Confidence survey respondents were more optimistic towards South Africa than in the previous two years. This was attributed to the economic optimism following the country’s new executive leadership, although they noted key structural and governance challenges remain.