South African private equity exhibited a considerable increase in investment activity in 2018, with the value of new investments and follow-on investments reaching a record-high of R35.4 billion, compared to an annual average of R15.2 billion over the preceding 10 years. Of the investments made during 2018, 17.4% were in the services sector, 17,0% in the retail sector and 14.3% were in the energy sector.
This was revealed in the SAVCA 2019 Private Equity Industry Survey, the annual survey of private equity activity in Southern Africa which was released to the industry on 17 July 2019. To obtain survey results, SAVCA, along with research partner Deloitte, surveyed 47 managers, representing 82 funds, with a mandate to invest in South Africa and in other African markets.
CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), Tanya van Lill, said that this uptick in investment activity, along with the strong fundraising figures reported for 2018, is indicative of the resilience of the private equity industry. She further notes that amid the numerous investment opportunities available in South Africa, investors are increasingly looking to private equity.
“Total funds raised increased by 71.6% in 2018. Of the R12.8 billion raised, R7.1 billion (56.6%) was raised locally in South Africa. This is an impressive figure, given the relatively downbeat macroeconomic climate in South Africa (real GDP was recorded at a mere 0.8% in 2018). That being said, the industry also benefitted from initiatives such as the government’s drive for foreign investment and the increased interest shown by local pension funds to invest in real assets which include private equity.”
The research showed that Southern Africa’s private equity industry, which is made up of both government and private funds, had R171 billion in funds under management (FUM) as at 31 December 2018. This represents a compound annual growth rate of 9.3% since 1999, when the survey first began.
In addition, South Africa’s private equity capital penetration continued its upward trend, having risen to 0.8% of GDP in 2018, which compared sizably with 0.02% for Nigeria, 0.1% for Brazil, 0.01% for Russia, 0.47% for India, and 0.2% for China.
“This means that although the South African private equity industry as a whole is relatively small in comparison to more developed economies, it is still well-established and significant in the regional market,” said van Lill.
Funds returned to investors in 2018 totalled R15.6 billion, which represents all cash flows returned to investors including the proceeds from realising investments, dividends, interest and repayment of loans. In terms of realising investments, trade sales were the most popular by value totalling R5.6 billion. The annual average funds returned to investors over the preceding five years was R13 billion.
“This is testament to the fact that emerging markets private equity continues to, not only provide investors with exposure to the private sector via private or unlisted companies and attractive returns, but also the opportunity to truly make a positive impact as investors and investees walk their journey together,” says van Lill
Additional highlights from the survey include the significant advances made in terms of transformation, with the percentage of female and black professionals within the industry increasing to 29.6% and 34.9%, respectively, from 21.8% and 29.9% in 2017.
SAVCA, as an industry body, is excited to see the positive trend of female and black professionals within the private equity industry and would like to see this trend extend to fund manager executive and ownership level.
“The exciting new Fund Manager Development Programme – a SAVCA initiative that aims to accelerate the entry of black and women-owned fund managers – is committed to driving a transformative change in the industry over the coming years,” van Lill concludes.
SAVCA 2019 Private Equity Industry Survey highlights include:
Southern Africa’s private equity industry had R171 billion in funds under management (FUM) at 31 December 2018, representing a compound annual growth rate of 9.3% since 1999, when the survey first began.
R12.8 billion was raised in 2018, with 55, 5% of the funds ear-marked for South African investments and the rest Pan Africa.
Of the funds raised during 2018, 56.6% were from South African sources (2017: 49.9%). South Africa has been the source of 64% of cumulative funds raised to date and not yet returned to investors (2017: 50%).
South Africa’s private equity capital penetration was equal to 0.8% of GDP in 2018 (2017: 0.7%). This compares with 0.02% for Nigeria, 0.1% for Brazil, 0.01% for Russia, 0.47% for India, and 0.2% for China.
Funds returned to investors in 2018 totalled R15.6 billion, compared to R17.6 billion in 2017