Returns on investment in South African private equity remain ahead of the returns delivered by listed equity, backing the case for private equity in a diversified institutional portfolio. This returns track record, along with the continued market recovery since the 2008 financial crisis, supports a new wave of fund raising by South African private equity fund managers, many of whom have launched new funds over the past year.

According to the latest RisCura-SAVCA South African Private Equity Performance Report, investments in this asset class provided an annualised rate of return of 22,2%, net of fees, in the ten years to the end of the third quarter of last year. The performance is in line with the ten-year return of 21,7% reported for the end of the second quarter of 2013.

Private equity returns outshine listed market

The report shows that the return on investments in private equity was marginally higher than the total return of 20,8% generated by the JSE All Share Index over the same period. It also kept up with the total return of 21,7% yielded by the JSE Shareholder Weighted Index (SWIX) over the period.

The report tracks the performance of a representative basket of South African private equity funds. A period of ten years is considered the suitable benchmark for a comparison of returns, given that private equity is a long-term asset class.

“Private equity returns compare favourably with returns on listed shares, despite the strong performance posted by listed indices in the past decade,” says Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association (SAVCA). “These returns have supported South African private equity fund managers in their latest fundraising endeavours, and many are poised to use this capital for new investment opportunities.”

Historical returns on private equity over a period of five years have been declining since 2012, owing to the impact of the global financial crisis, but three-year returns are showing signs of post-crisis recovery and have been trending upwards since 2010.

Shifting focus: Maturing funds and establishment of new private equity funds

Cash-flow trends into and out of private equity funds signify the shifting focus for many fund managers in the South Africa industry: Distributions – the return of cash to institutional investors into private equity funds – have outstripped drawdowns over the last year.

Rory Ord, Head of RisCura Fundamentals, explains: “Many South African funds are starting to mature, having reached the end of their mandated cycle. The overall trend now is towards a net pay-out of cash, back to investors.”

Referring to the surge of successful fundraising by South African fund managers over the past year, a trend which is expected to continue, Rory adds: “We expect to see a rise in drawdowns to South African private equity fund managers in the coming year as capital is deployed by this new cycle of funds.”

More information?

For more information, please contact Rory Ord via email or on +27 (0) 21 673 6999, or contact Erika van der Merwe, CEO: SAVCA via email.

Media contacts

For media enquiries in South Africa, please contact Courtney Ellis via email or on +27 (0)21 673 6999. In the UK, contact Kate Boyle via email or on +44 (0)7930 442 883.