In the face of high market volatility and lagging economic growth, the latest RisCura-SAVCA South African Private Equity Performance Report reveals that the South African private equity industry outperformed listed equity over the short- and medium-term, as of June 2019.
The second 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 1.6%, 4% and 4.2%, respectively, over the three-year period. At Q1 2019, these results were comparable at 3.2%, 6.9% and 5%, respectively.
Tanya van Lill, SAVCA CEO, says that despite the persisting low-return environment, South African private equity has managed to remain resilient for the most part. “The investment environment continues to be extremely challenging, but private equity’s performance relative to the listed market remains favourable. This sustained outperformance demonstrates the value that the private equity asset class is able to bring to a portfolio amid extreme market volatility and lagging economic growth.”
According to the report, the 10-year, five-year and three-year ZAR IRR’s declined from 11.5%, 13% and 8.3% in Q1 2019 to 9.9%, 12.1% and 7.9% in Q2 2019, respectively. The 2013-2015 vintage funds also saw a decline in their performance since last quarter, ending the quarter at an IRR of 8.3%, compared to 8.7% in Q1 2019. The 2010-2012 vintage funds reported an IRR of 4%, down from 5.1% in Q1 2019.
Similarly, the USD IRR weakened over the five-year and 10-year periods, reaching 5.2% and 3%, respectively, down from 5.6% and 6.1% in Q1 2019. Over the three-year period, however, the USD IRR improved from 10.1% in Q1 2019 to 10.3% in Q2 2019.
Monwabisi Zikolo, a senior private equity analyst at RisCura, notes that certain figures were restated in this latest report. “The restatement transpired due to the removal of funds with a vintage year prior to 2004, as these funds operated under vastly different macroeconomic conditions.”
Despite the sluggish level of national growth being exhibited, Van Lill believes that certain industries in South Africa remain ripe with opportunity for private equity capital. “We continue to see a lot of capital flowing into healthcare, education, and infrastructure. Importantly, in addition to generating financial returns for investors, these investments also provide essential products and services,” she concludes.