Private equity shows promise

Investing in the private equity sector is showing promise with the sector outperforming when compared with investments in listed markets, which tracked sideways for three years, until June this year.

The Southern African Venture Capital and Private Equity Association (Savca) released its RisCura Savca Q2 2017 South African private equity performance report, which reveals private equity’s performance remains positive. The industry outperformed the FTSE/JSE All Share Total Return Index (ALSI TRI) and the FTSE/JSE Shareholder Weighted Total Return Index (SWIX TRI) over this period.

The quarterly report which tracks the performance of a representative sample of South Africa’s private equity funds showed that the industry delivered a 10-year (in rand terms) internal rate of return (IRR) of 13.8% at June 2017, compared to the five-year IRR, which stands at 13.7%.

Savca’s Tanya van Lill said she attributes the positive performance to the “sophisticated and innovative risk assessment models”, which private equity players use when making their investment decisions. She also said the positive performance comes with the realisation of value during the investment period.

Against the backdrop of a volatile economy, low GDP growth, declining investor confidence and political uncertainly, private equity returns were more favourable compared to the listed indices over the three-year period.

Opportunities for retail investors to get their foot in the private equity sector are available. Van Lill said since there is an increase in private equity fund managers listing permanent capital vehicles on the stock exchange, retail investors can participate in purchasing shares.

Investing in a Section 12J VCC is also an option, as the retail investor will receive a tax rebate from Sars for the investment. Van Lill added the private equity industry’s sustained investment into the economy will continue to make a valuable contribution towards addressing embedded structural challenges.