Private equity returns soften in third quarter 2015

Private equity returns across 10, five and three years softened in the third quarter of last year as lower commodity demand and a weaker currency dampened company performance. This is according to the latest RisCura SAVCA South African Private Equity Performance Report.

The pooled internal rate of return (IRR) over 10 years was 20.7% for the quarter ending September 2015, compared to 21.7% the previous quarter. Over a five-year period, private equity returned 17.4%, compared to 18.5% in June. Over three years, the asset class returned 15.7% compared to 16.4% the previous quarter.

Rory Ord, executive at RisCura, says the local private equity market held up well amidst a flight of investors from emerging markets to more stable economies.

“The South African private equity market in the third quarter of 2015 had a number of realisations on investments,” he says. “However, capital drawdowns for new investments still exceeded distributions.”

In US dollars, the effect of a weak rand was most pronounced with 10-year IRRs slipping to 15.8% from 18.1% in June. Over five years the asset class returned 4.7% in US dollars, considerably lower than the previous quarter’s return of 11.3%. Over three years, returns were negative as the asset class was down 2.1% compared to a positive 1.8% the previous quarter.

Compared to leading market indices in South Africa, the asset class remained ahead over a 10-year period, returning 20.7% compared to the FTSE/JSE All Share Total Return Index (ALSI TRI), which returned 14.9%. Over the same period, the Financial and Industrial Total Return Index (FINDI TRI) returned 19.3%, while the FTSE/JSE Shareholder Weighted Total Return Index (SWIX TRI) returned 15.6%.

Over five years, private equity outperformed the ALSI TRI and SWIX TRI, with a return of 17.4%, compared to 14.9% and 16%, respectively. The FINDI TRI returned 23.7% over the same period.

Over a three-year period, the asset class returned 15.7% compared to 15.4% for the ALSI TRI. Meanwhile, the FINDI TRI and SWIX TRI returned 25.5% and 116.2%, respectively.

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