Absolute solution for South Africa’s economic expansion
PRIVATE equity alternative investment assets are those which are not part of traditional asset classes such as cash, stocks, or bonds that retail investors are most familiar with.
Alternative investments are encompassing investing in mainstream assets such as private equity real estate, private equity infrastructure, private debt funds, commodities and luxury goods such as art or wine.
Alternatives will be those which have historically utilised distinctive fund structures and which mainly wealthy individuals, philanthropists and institutions have had access to invest.
Alternative investments have played the most important role in the evolution of the industry and have accounted for the vast majority of the capital allocated to alternatives.
Political and economic instability can lead to minimum capital raised and also a high volume of capital raised the past years returned to investors, a scenario for 2016 and 2017 portrays in our markets.
Funds raised
According to the Southern African Venture Capital and Private Equity Association report for 2017, funds raised in 2016 were R10.2 billion, the majority of which were sourced from South Africa, and although significantly lower than the R27.5bn raised in 2015.
The substantial increase in capital returned to investors is indicative of the private equity life cycle and the ability of our industry to remain agile to changing market conditions.
It is notable that the survey reveals that the bulk of capital raised in 2016 (R7bn) is for early-stage investments.
Southern Africa’s private equity industry, including both public and private funds, had R171.8bn in funds under management at December 31, 2016, an increase from R158.5bn at December 31, 2015. It increased by R13.3bn from 2015 to 2016.
Of funds under management at the end of 2016, R58.2bn was in undrawn commitments.
This gives clarity that southern African private equity investments are small in size, with much focus on general and core private equity.
The future of alternative investments will likely continue to be influenced by regulatory changes in financial services that also relates to pension funds and commercial banks.
Emerging markets such as South Africa and the rest of African markets are in need of private equity alternative investments.
The African infrastructure backlog requires a change in how things are being done in African governments traditional development finance, project preparations for infrastructure and manufacturing projects that are having high community impact in environment and job creation to realise a better life for all people.
The technological revolution or the fourth industrial revolution needs private equity alternative investments to finance innovative ideas that will lay a pivotal role in mainstreaming Africa to global competitiveness and expansion.
The economic boom and growth of the South African economy and other African markets will require good political leadership like Cyril Ramaphosa, adaptation of King IV Governance by state-owned enterprises that will result in better doing business to attract domestic and global investors.
Strong market returns or growth prospects will result in more small businesses development that will create sustainable jobs for the unemployed youth and improve the living conditions for all people.
Most governments only permit wealthy individuals, philanthropists and institutional investors (such as pension funds, sovereign wealth funds, and endowments and foundations) to invest in alternative investments.
The belief is that such investors are better able to understand and manage the complex, often high risk, and illiquid nature of alternative investments.
The innovation in the financial sector is also giving chance to crowdfunding targeted for real estates and luxury goods.
The investment life cycle for most types of alternative investments is usually much longer, such as five, seven and 10 years and actively involved in the running of projects and businesses than that of a traditional investment.
The private equity debt funds, distressed debt, and direct lending funds are having a huge market in Africa as most listed corporates, small and medium enterprises are distressed, this institution needs the restoration through the alternative investments.
The growth in alternative investment related shadow lending has been dramatic in the market and the implications for investors, regulators, and the system are still unknown. We believe in investor value proposition guiding our investments criteria and working with our partners and willing future partners.
The shadow lending products such as special purpose vehicle securitisation, money market mutual funds non-bank lenders, asset-backed commercial paper and private equity managed debt funds are currently disrupting the global financial markets and we will see South Africa embracing these products highly in the short to long term.
Private equity alternative investments are the absolute solution for the economic expansion through project preparations of infrastructure such as power, ports and terminals, commercial transport (vessels, airports and logistics), water and sanitation; real estate; integrated supply chain; technology, media and telecommunications; space economy; affordable private healthcare and upgrades in public healthcare; manufacturing; agroprocessing and industrialisation.
Private equity’s mainly alternative investments can add value in building a strong African economy that will create jobs working with governments.
Commitment
The National Treasury has to review the allocation budgets to focus mainly on development finance. Infrastructure development finance will assist as equity funders see that as project commitment.
We believe that the expansion of the economy and decentralisation will assist all municipalities to strengthen.
The Nordic, Singapore, Malaysia and German small business developments are great scenarios to grow the economy.
Private equity’s mainly alternative investments can add value in building a strong African economy that will create jobs working with governments and private sectors including commercial banks.
Inequality in South Africa is very high and the expansion of the economy is solution for the future.
We need great skills in targeted sectors in infrastructure and manufacturing areas.