HEAD OF SAVCA ON THE BEN­E­FITS OF PRI­VATE EQ­UITY

Erika van der Merwe started her ca­reer as an econ­o­mist be­fore mov­ing into fi­nan­cial jour­nal­ism. To­day she is the CEO of the South­ern African Ven­ture Cap­i­tal and Pri­vate Eq­uity As­so­ci­a­tion (SAVCA). We spoke to her about the chal­lenges fac­ing the ven­ture ca

Finweek English Edition - - FRONT PAGE - By Buhle Nd­weni

erika van der Merwe is known to many as a pre­sen­ter on the then Sum­mit TV, and pre­vi­ously on RSG, but to­day this econ­o­mist and for­mer fi­nan­cial jour­nal­ist is in charge of the South­ern African Ven­ture Cap­i­tal and Pri­vate Eq­uity As­so­ci­a­tion (SAVCA).

Van der Merwe was at Sum­mit TV, hav­ing ob­tained her char­tered fi­nan­cial an­a­lyst (CFA) ac­cred­i­ta­tion in 2011, when SAVCA of­fered her the role of CEO. She took the po­si­tion in 2012. SAVCA’s ac­tiv­i­ties in­clude the pro­mo­tion of the ven­ture cap­i­tal and pri­vate eq­uity in­dus­try in South­ern Africa, and to stim­u­late cap­i­tal rais­ing for ven­ture cap­i­tal and pri­vate eq­uity in­vest­ments.

Van der Merwe notes that the ven­ture cap­i­tal (VC) in­dus­try is rel­a­tively new and un­der­de­vel­oped in South Africa.

“VC in SA is still some way away from the level of de­vel­op­ment seen in Is­rael or in the US or UK, where there’s a longer his­tory and track record [and] greater con­fi­dence and will­ing­ness to take on risk,” says Van der Merwe. “At this stage South African VC is fairly re­liant on a few an­gel in­vestors – in­di­vid­u­als who have made their money and who un­der­stand what en­tre­pre­neur­ial suc­cess looks like – rather than ben­e­fit­ting from cap­i­tal al­lo­ca­tions and other sup­port from large, in­sti­tu­tional in­vestors and from gov­ern­ment.”

Fol­low­ing man­date changes at gov­ern­ment in­sti­tu­tions like the Tech­nol­ogy In­no­va­tion Agency (TIA) and the In­dus­trial De­vel­op­ment Cor­po­ra­tion (IDC), these or­gan­i­sa­tions no longer pro­vide tar­geted cap­i­tal back­ing for VC.

Pri­vate eq­uity ad­vo­cacy

Com­pared with VC, the South African pri­vate eq­uity as­set class en­joys a lit­tle more sup­port from in­sti­tu­tional in­vestors, al­though there is still much scope for a greater al­lo­ca­tion to the as­set class.

“The im­por­tance of pri­vate eq­uity in a large, di­ver­si­fied in­sti­tu­tional port­fo­lio,” she ex­plains, “is that it boosts re­turns, pro­motes di­ver­si­fi­ca­tion and thus risk re­duc­tion, and brings about pos­i­tive im­pact on busi­nesses and the com­mu­nity.”

Re­fer­ring to the re­turns ben­e­fit of pri­vate eq­uity, Van der Merwe cites the RisCura-SAVCA pub­li­ca­tion that tracks the per­for­mance of South African pri­vate eq­uity. “If you look at the re­turns over a 10-year pe­riod, it out­per­formed listed eq­uity most of the time.”

With South African in­sti­tu­tional back­ing for pri­vate eq­uity still be­ing lim­ited, fund man­agers con­tinue to com­ple­ment their cap­i­tal rais­ing by tar­get­ing in­ter­na­tional in­vestors. Given that that these funds are raised in dol­lars or other so-called “hard” cur­ren­cies, and with the pri­vate eq­uity in­vest­ment in many cases be­ing made in rands, it does make it more challenging to meet a dol­lar-re­turn tar­get for the in­vestor. “For the time be­ing, South African pri­vate eq­uity fund man­agers will be care­ful how much new dol­lar cap­i­tal they are rais­ing, and will be fo­cused on con­struct­ing well-di­ver­si­fied and ro­bust port­fo­lios to en­sure healthy re­turns for in­vestors,” she says.

SAVCA ac­tively en­gages with pen­sion funds and other in­sti­tu­tional in­vestors in South­ern Africa with the pur­pose of pro­mot­ing the pri­vate eq­uity as­set class. It cur­rently of­fers, in part­ner­ship with Gibs, a foun­da­tion pro­gramme in pri­vate eq­uity for in­dus­try prac­ti­tion­ers, and hosts train­ing work­shops for pen­sion fund trustees about the work­ings of this as­set class.

“What we see in the South African pen­sions in­dus­try is a huge re­liance on as­set con­sul­tants,” she says. This was con­firmed by a SAVCA re­port, New Fron­tiers, re­leased re­cently. “The bulk of the pen­sion funds we sur­veyed use con­sul­tants for a va­ri­ety of ser­vices… If as­set con­sul­tants aren’t look­ing at pri­vate eq­uity as an op­tion, then the pen­sion fund client doesn’t get to hear about that op­por­tu­nity,” says Van der Merwe.

Where does she want to see the in­dus­try headed in fu­ture?

“Con­ser­va­tively es­ti­mated, there’s $29bn held by African pen­sion funds that can go to pri­vate eq­uity – if you look at what lo­cal pen­sion fund reg­u­la­tions per­mit, [that’s] what we can mo­bilise. It’s our dream and vi­sion as SAVCA to see more of that cap­i­tal be­ing mo­bilised. And to en­able that, we need clear ad­vo­cacy for the as­set class, more in­ter­act­ing, re­search and train­ing,” she says.

Erika van der Merwe CEO of SAVCA

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