PE sector outperforms all listed benchmarks over 5-year period
During the fourth quarter of 2018 – a period that was characterised by extreme currency volatility, political uncertainty, and subdued economic growth – South Africa’s private equity sector continued to exhibit strong performance across all three listed benchmarks (JSE ALSI, FINDI and SWIX) over the five-year period.
This is according to the latest results of the RisCura-SAVCA South African Private Equity Performance Report, which tracks a representative basket of private equity funds in South Africa relative to the listed equity market. The quarterly report shows that the *Public Market Equivalent (PME) is greater than one when calculated against the JSE ALSI, the FINDI and the SWIX over the five-year period, reflecting positively for the asset class. The greatest outperformance is relative to the JSE All Share Index (ALSI), recording a PME ratio of 1.10.
Graph (below): PME results by time period (ZAR)
Over the 10-year period, private equity continues to outperform the ALSI on a Total Return Index (TRI) basis.
Graph (below): CAGR
The quarterly report, also revealed that the 10-year ZAR internal rate of return (IRR) has improved from 11.8% in the prior quarter to 12.7% in Q4 2018, resulting in a noteworthy improvement over the past year, from 11.6% in Q4 2017.
Graph (below): Pooled IRR by time period (ZAR)
Over the three- and five-year periods, the returns declined to 3.6% (Q4 2017: 10.9%) and 10.2% (Q4 2017: 13.1%), which Tanya van Lill, SAVCA CEO, believes is a testament of the continued subdued GDP growth over recent years. “Following the technical recession in the first half of 2018, South Africa’s growth profile still lags some emerging market territories.
“As a result, fund managers have had to be more actively involved and innovative to stimulate the growth of their investments and achieve competitive returns,” she notes.
Despite a challenging environment, the country’s private equity sector’s performance relative to the listed market remains favourable: “The latest [report] reveals that private equity’s performance relative to listed markets remains steady,” says Monwabisi Zikolo, private equity analyst at RisCura.
“The improvement in the headline return measure (the 10-year ZAR IRR), coupled with the outperformance of listed equities over the five-year period, are positive indicators of the quality of South Africa’s private equity investments,” adds Zikolo.
The figures are an indicator that the industry remains well-positioned to continue on a positive trajectory, says van Lill. “The outcome of the 2019 national elections paves the way for enhanced policy certainty, which is likely to facilitate an improved economic growth outlook,” she says.
Van Lill adds that the additional R290bn that was pledged towards investment activity in South Africa at the investment conference in 2018 also bodes well in support of this growth outlook. “This announcement confirmed the view that investment remains a key enabler of job creation and growth for South Africa, and signals that an improved growth outlook is a top priority for 2019,” she concludes.
*A measure of relative performance, which has a value of more than one when private equity outperforms listed equity.
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. SAVCA promotes the Southern Africa venture capital and private equity asset classes on a range of matters affecting the industry, providing relevant and insightful research, offering training on private equity and creating meaningful networking opportunities for industry players.