Private equity returns highlight the value of the asset class

Graph 1: Private equity returns over different time periods

Graph 1: Private equity returns over different time periods

The latest performance record of South African private equity, as reflected in the RisCura-SAVCA South African Private Equity Performance Report for the second quarter of 2016, confirms the capacity of this asset class to deliver steady returns in a setting of moderate to slow local and international economic growth.

The report, which tracks a representative basket of private equity funds in South Africa, shows that the South African private equity industry delivered a ten-year internal rate of return (IRR*) of 18.1% at the end of June 2016, down from 19% reported in the previous quarter (ending 31 March 2016). This compares with the ten-year IRR of 21.7% measured at 30 June last year.

As has been the case for several quarters, private equity performance relative to the listed equity market remains favourable: The 18.1% ten-year return from private equity is an outperformance relative to the 12.6% delivered by the FTSE/JSE All Share Total Return Index (ALSI TRI) over the same period. Private equity also outperformed the FTSE/JSE Shareholder Weighted Total Return Index (SWIX TRI), which yielded 14.0% over the equivalent period, and was in line with the 18.0% return from the FTSE/JSE Financials (FINDI TRI).

Over a five-year period, private equity provided a 13.4% return, slightly below the 13.8% ALSI five-year showing; over three years private equity yielded 14.9%, while the ALSI recorded a 13.0% return.

Erika van der Merwe, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), says that the private equity investment philosophy of active stewardship underpins the performance of the industry.

Van der Merwe adds that this outperformance makes a compelling case for private equity to be included in a diversified, institutional portfolio. “The returns-boosting nature of private equity, evident from this data series, represents a strong case for the inclusion of the asset class into long-term institutional portfolios such as pension and provident funds, endowments, other long-term savings vehicles and sovereign wealth funds. Moreover, the diversification characteristics of private equity – the fact that it is not strongly correlated with other asset classes – means its incorporation into a diversified portfolio contributes to the lowering of overall portfolio risk.”

Another factor in the appeal of private equity to institutional investors is its positive impact characteristics, says Van der Merwe. “Impact investing, with a range of targeted and measured variables, is often a mandated requirement by institutional investors. Private equity is ideally suited to meeting these mandate requirements, given its demonstrable track record of furthering environmental, social and governance (ESG) initiatives that drive sustainable development and growth.”

Deborah O’Hanlon, senior analyst at RisCura, adds that the latest performance report shows that US dollar returns of local private equity funds improved over the three-year and ten-year periods, as a result of the strengthening of the rand relative to the dollar. “The three-year returns improved from negative territory (-1.5%) over the last quarter, to 1.5% this quarter, while ten-year returns improved marginally, from 13.5% to 13.8% this quarter, despite the decline in local currency IRR.”

“As South African private equity continues to demonstrate its resilience and to deliver double-digit returns for investors, the asset class remains an attractive option for investors in the current low-returns environment,” Van der Merwe concludes.



Latest


16 Feb 2021
Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the…

Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the delivery of transition management services across Southern Africa. Under the partnership, Standard Bank’s clients will gain access to Northern Trust’s full suite of transition management services. Transition Management is a…

16 Feb 2021
Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at…

Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at Metope Investment Managers The tax year, along with the deadline for an investor’s maximum R36 000 annual tax-free savings account contribution, comes to an end on the 28 February 2021. Investors…

16 Feb 2021
Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises…

Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises to deliver smoother, more consistent investment returns, despite cyclical turbulence of financial markets. Given last year’s drastic swings in financial markets and continued uncertainty on how the Covid pandemic will…

16 Feb 2021
Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well…

Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well as the uncovered population, in being vaccinated. As the COVID-19 virus continues to spread, a third wave is imminent, should the vaccination rollout not commence soon. Speaking at a recent…


Top stories


10 Sep 2020
How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key…

How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key that dubbed America “The land of the free”, which stuck, to the unforgettable Mel Gibson monologue where an army of painted Scots were willing to trade their lives for the…

13 Apr 2020
Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19…

Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19 environment and what form a global market recovery will take.

13 Apr 2020
SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The…

SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The draft Bill, together with its explanatory memorandum, provides clarity with regards the tax relief measures President Cyril Ramaphosa announced on 23 March.

10 Apr 2020
When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved…

When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved to be most enterprising in acclimatising to challenges as they arise.


Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za