The latest RisCura-SAVCA South African Private Equity Performance Report indicates that prospects for the local private equity industry are looking up, with the ten-, five-, and three-year ZAR internal rate of returns (IRRs) having improved from 13.2%*, 12.2%* and 7.0%* in Q4 2018 to 14.5%, 12.8% and 8.2% in Q1 2019, respectively.
Tracking the performance of a representative basket of private equity funds in South Africa, this latest report also shows improved returns for pooled IRR by vintage year, particularly for the newer funds. The 2013-2015 vintage funds saw an improvement in their performance, ending this quarter at an IRR of 8.7%, compared to 8.4%* in Q4 2018. Similarly, the 2010-2012 vintage funds reported an IRR of 5.1%, up from 4.3%* in Q4 2018.
Tanya van Lill, SAVCA CEO, says that these sustained positive rand-based returns are testament to the resilience shown by the private equity industry during trying times. “Amid high levels of market volatility and subdued economic growth, the encouraging performance of South African private equity underscores the returns-boosting role that this asset class can play in a diversified institutional portfolio.”
Dollar-based returns were also encouraging, she adds. “USD IRR improved over the five-year and ten-year periods, reaching 5.4% and 12.2%, respectively, up from 4.9%* and 10.6%* in Q4 2018. Over the three-year period, the USD IRR declined from 11.2%* in Q4 2018 to 10.0% in Q1 2019.”
Markedly, the performance of South African private equity remains favourable relative to the listed market, she notes. “Local private equity continues to outperform the South African listed equity market across all three listed benchmarks over the five- and three-year periods. Over the ten-year period, the only benchmark that private equity did not outperform is the FINDI TRI.”
Van Lill says that the report’s direct alpha metric, which measures private equity’s outperformance versus a public market index, echoes this sentiment. “The direct alpha earned by private equity relative to the ALSI TRI, FINDI TRI and the SWIX TRI is 3.1%, 6.8% and 5%, respectively, over the three-year period. At Q4 2018, these results were comparable at 2.8%*, 7.3%* and 3.2%*, respectively.
“The direct alpha earned by private equity therefore increased considerably, especially for the three-year results, when compared to the SWIX TRI,” she notes.
Monwabisi Zikolo, a private equity analyst at RisCura, pointed out that there were some changes to the sample used for this period. “The sample size of funds was adjusted in Q4 2018 to exclude funds from Zimbabwe, due to the prevailing economic conditions,” he said.
“There was instability relating to the country’s currency, and, as such, the decision was taken to exclude funds based and predominantly investing in Zimbabwe, until the economic conditions have stabilised,” Zikolo explains.
*Restated - The restatement transpired due to the receipt of updated historical cash flows from some of the report participants