Private equity shows its mettle over past decade

THE private equity industry in SA more than tripled returns to investors in the 10 years to 2015, a Southern African Venture Capital and Private Equity Association (Savca) survey showed on Tuesday.

Savca CEO Erika van der Merwe attributed the strong showing to the maturing of private equity investments.

Private equity involves the buying and selling of unlisted companies. In 2005, the industry raised R2.2bn from investors. Last year, it returned R8.9bn to investors on roughly the same assets through disposal proceeds, loan repayments, interest and dividends.

“We are at a point where (private equity) funds are mature, and we are seeing a lot of exits,” Van der Merwe said.

Ethos Private Equity dominated Savca’s ranking of the top five disposals in 2015, selling Tiger Wheel & Tyre parent TI Auto to Old Mutual and the Carlyle Group; plumbing supplier Plumblink to Bidvest for R446m; and cashing in the rest of its shares in Transaction Capital, which listed on the JSE in 2012, for R422m.

Over 10 years, the asset class returned 18.5%, outperforming listed equities.

There were also new deals. The sector raised a record R29bn in new funds in 2015, up from R11.8bn the year before. The bulk of it (75.9%) came from SA, the UK contributed 4.6%, with the rest coming from the US and the rest of Africa.

The largest domestic investors were pension funds, which contributed R3.2bn of the total, but Van der Merwe indicated that it could have been more, because few pension funds had taken advantage of a 2011 change in legislation allowing them to invest up to 10% of their assets under management in private equity funds, up from just 2.5% previously.

Savca held two training sessions with pension fund trustees last year, and Van der Merwe concluded that it would take a long time for them to come to grips with the asset class.

Africa has been popular with foreign equity investors for the past 24 years.

Many are seeking out opportunities in infrastructure, with US giants Carlyle and Blackstone announcing multimillion-dollar infrastructure funds.