Private equity remains favourable relative to listed market

South Africa’s private equity industry again outperformed listed equity over the medium term, according to the latest RisCura-SAVCA South African Private Equity Performance Report released in mid-August.

The 2019 fourth quarter report, which tracks a representative basket of private equity funds in South Africa, shows outperformance across all three listed benchmarks over five years. Over the three-year and 10-year periods, 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 2.9%, 3.8% and 3.9%, respectively, over the five-year period. At Q3 2019, these results were comparable at 4.6%*, 3.4%* and 5.1%*, respectively.

SAVCA CEO, Tanya van Lill, says that South African private equity continues to deliver value for investors. “Results for the first and second quarters of 2020 will be telling, but we believe that private equity will remain resilient relative to the listed market.”

According to the report, the 10-year ZAR IRR remained flat at 8.8%* in the fourth quarter of 2019 as compared to Q3 2019, and declined by 90 basis points as compared to December 2018 (9.7%*). The five-year ZAR internal rate of return (IRR) declined from 10.1%* in Q3 2019 and 10.5% in Q4 2018 to 8.8% in Q4 2019. The three-year IRR improved by 40 basis pints (bp) to 4.4% in Q4 2019 from 4%* in Q3 2019 and Q4 2018.

The 2007-2008 vintage funds have seen an improvement in their performance since last quarter, ending the quarter at an IRR of 8.7%, compared to 8.6%* in Q3 2019 and remained flat as compared to Q4 2018. The 2010-2012 vintage funds reported an IRR of 3.2%, down from 4.1% in Q3 2019 and 4.3% in Q4 2018. The 2013-2015 vintage funds improved from an IRR of 9.4%* in Q3 2019 and 9% in Q4 2018 to 12.4% in Q4 2019.

The USD IRR improved over the three-year, five-year and 10-year periods, reaching 3.6%, 4.4%, and 1.7%, respectively, up from 0.8%*, 3.7%*, and 1.3%*, respectively in Q3 2019. The US dollar IRRs across all periods improved due to the rand strengthening by approximately 7.7% against the US dollar from September 19 to December 19.

Monwabisi Zikolo, senior private equity analyst at investment firm RisCura, says that despite significant headwinds, the prospects for private equity investments remain favourable.

*The December 18 and September 19 IRRs have been restated due to a realisation that was double-counted.