Last week’s release of the RisCura-SAVCA South African Private Equity Performance Report confirms that the local asset class continues to yield good returns for investors. Data indicates that investments into private equity funds delivered an annualised rate of return of 18.5 percent, net of fees, over the ten years to September 2014.
This latest performance is on par with the 18.6 percent recorded in the previous quarter, reflecting a steadying in the numbers as some of the gains experienced during the bull market of the early 2000s start to have less significance in the analysis period.
Private equity returns lag slightly below JSE indices; the All-Share Index (ALSI) returned 18.8 percent over the equivalent period and the Shareholder Weighted Index (SWIX) returned 19.7 percent. Private equity returns for the five years to September 2014 reached 17.3 percent, and continue to show a trend of recovery since the financial crisis. Three-year returns have lifted since the previous quarter’s recording, to 14.4 percent.
“This report confirms that private equity returns compare favourably with listed markets even at a time when the JSE is trading at frothy levels,” says Erika van der Merwe, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA). “While the effect of the global financial crisis is still evident over some of the periods measured, our view is that recovering confidence and the ability of private equity fund managers to back operational expansion and strategic growth in their underlying portfolio companies augur well for solid returns in the medium to long term.
Rory Ord, Head of RisCura Fundamentals, comments on South African private equity’s continued allure for institutional investors: “The private equity industry remains an attractive investment choice for patient investors with a long-term horizon. The returns offered compare favourably to the listed markets and offer important diversification benefits in the asset allocation decision. Furthermore, the growth in the industry is extremely encouraging given the economic advantages offered by private equity funding and the hands-on management style it supports.”
The trend of private equity funds returning cash to investors continues, with distributions outstripping drawdowns over the last year. While this is set to continue, a rise in drawdowns is expected in the near future as managers deploy capital in a new cycle of funds.
The report tracks the performance of a representative grouping of South African private equity funds. A period of ten years is considered an appropriate benchmark for a comparison of returns, given that private equity is a long-term asset class.
