Pri­vate eq­uity shows prom­ise

The Citizen (Gauteng) - - BUSINESS - Aarti Bhana

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.

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