Private equity managers invest a record R31bn
Survey finds investments in 2017 at R31.1bn and nearly 30% went to early stage businesses
Political turmoil did not deter Southern Africa’s private equity managers in 2017, which invested a record R31.1bn, according to a survey published this week.
That compared with an annual average of R14.7bn over the preceding 10 years, the Southern Africa Venture Capital and Private Equity Association’s (Savca’s) annual private equity survey finds.
New investments, as opposed to follow-on investments, accounted for 60% of the total, or R18.9bn. This was surpassed only once in 16 years, by a record R24.7bn in 2007. The retail, services and real estate sectors claimed more than 50% of investments made in 2017.
Increased private equity activity, which refers to investments into private, rather than listed, companies, bodes well for economic growth.
Private equity contributed to the creation of up to 5,600 new businesses in Europe annually, a 2013 report by Savca’s European equivalent found.
The Savca survey, which was sent to 141 funds with investments in Southern Africa, represents 80 funds.
Savca found that nearly 30% of investments went towards early stage businesses, up from 12.3% in 2016.
"There is definitely growth in the market and new [private equity funds] are fundraising," Savca CEO Tanya van Lill told Business Day on Thursday.
Funds raised in 2017 fell to R7.5bn from R10.2bn in 2016, following a number of strong fundraising years.
Governments, aid agencies and development finance institutions (DFIs), particularly from Europe, were the largest contributors. South African pension and endowment funds barely featured in 2017, but contributed the most in 2016.
Growing numbers of new fund managers could partly explain this, Van Lill said. "DFIs tend to support them, whereas pension funds don’t support [brand] new fund managers."
Speaking at the launch of the survey this week, Savca chairman Craig Dreyer said too few pension funds were investing in private equity.
Pension fund rules allow for up to 10% of a fund’s assets to be invested in private equity.
Van Lill said she expected to see a growing number of specialised funds targeting areas where the public sector had failed to deliver, such as in the areas of infrastructure, healthcare and education.
An increase in public-private partnerships, particularly on large infrastructure projects, was also likely, she said.
Funds returned to investors in 2017 totalled R17.6bn, marginally below the prior year but above the five-year average. Disposals to other private equity firms accounted for 40% of this, suggesting there was "still value to be had", said Van Lill.
Globally, the period for which private equity funds held companies had increased to a median five years, as it took longer to generate strong returns, Bain & Co’s 2018 Global Private Equity Report finds.
Respondents had R158.6bn in funds under management at the end of 2017, of which R15.5bn was available for future investments exclusively in SA.