SA Private Equity continues to outperform listed market

The latest RisCura-SAVCA South African Private Equity Performance Report reveals that the country’s private equity industry again outperformed listed equity over the short- and medium-term, as of September 2019.

The 2019 third quarter report, which tracks a representative basket of private equity funds in South Africa, shows outperformance across all three listed benchmarks over the three-year and five-year periods. Over the 10-year period, private equity underperformed across all three listed benchmarks.

 
The direct alpha earned by private equity relative to the ALSI TRI, FINDI TRI and the SWIX TRI is 2.9 per cent, 4.0 per cent and 5.4 per cent, respectively, over the three-year period. At Q2 2019, these results were comparable at 1.6 per cent, 4.0 per cent and 4.2 per cent, respectively.
 
SAVCA CEO, Tanya van Lill, says that South African private equity has managed to remain resilient despite high volatility and low growth. “We are facing an extremely challenging investment environment as markets around the globe take strain due to Covid-19, however we believe that private equity’s performance will remain favourable relative to the listed market.”
 
According to the report, the 10-year and three-year ZAR IRRs declined from 9.9 per cent and 7.9 per cent  in Q2 2019 to 9.6 per cent and 7.5 per cent in Q3 2019, respectively. The five-year ZAR IRR has remained unchanged at 12.1 per cent in Q3 2019.
 
The 2007-2008 vintage funds also saw a decline in their performance since last quarter, ending the quarter at an IRR of 8.6 per cent, down from 8.7 per cent in Q2 2019. The 2010-2012 vintage funds reported an IRR of 4.1 per cent, up from 4.0 per cent in Q2 2019. The 2013-2015 vintage funds improved from an IRR of 8.3 per cent in Q2 2019 to 8.6 per cent in Q3 2019.
 
The USD IRR weakened over the three-year and 10-year periods, reaching 4.3 per cent and 2.0 per cent, respectively, down from 10.3 per cent and 3.0 per cent in Q2 2019. Over the five-year period, however, the USD IRR improved from 5.2 per cent in Q2 2019 to 5.5 per cent in Q3 2019. The reason for the large decline in the USD IRR for the three-year period is due to the ZAR weakening by approximately 10 per cent against the USD over the period from Sep16 to Sep19.
 
Monwabisi Zikolo, a senior private equity analyst at investment firm RisCura, says that the prospects for private equity investments remain favourable despite uncertainty in local and global markets. 

“We expect to see increased capital flowing into sectors such as healthcare and infrastructure, and these investments have demonstrated their ability to generate financial returns, while also providing crucial products and services.”