The latest RisCura SAVCA South African Private Equity Performance Report, for the second quarter of 2013, confirms that the asset class continues to deliver steady returns that compare favourably with those reported for listed equity.
“RisCura’s survey findings once again show that private equity has an important returns-boosting role in a diversified institutional portfolio,” says Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association (SAVCA).
As private equity is a long-term asset class, the ten-year return is considered a suitable time frame for assessing its performance.
RisCura’s latest quarterly survey shows that South African private equity delivered an annualised return of 21.7% over ten years, net of fees. The All Share Index lifted by 19.6% on a compound annual growth basis over the same period (these are total index returns before deducting fees).
This ten-year return as at June 2013 is on par with the returns reported for the March 2013 quarter and is higher than the 17% reported in June 2012. With three years’ data now available, the highest ten-year return reported was for December 2011, when it reached 23%.
“Our research has shown much increased deal-making activity in South Africa over the past two years,” says Rory Ord, Head of RisCura Fundamentals. “In the 3 years after the financial crisis hit, deal making was difficult as buyer and seller expectations were so far apart, but this has certainly improved since mid-2011.”
While on par — or better than — listed equity returns, private equity returns over a five-year horizon reflect the effect of the global financial crisis.
Five-year private equity returns as at June 2013 reached 12.8%, up slightly from the previous quarter, but below the survey peak of 21% in September 2010. This compares with the 7.0% return from the All Share Index in June 2013.
On a three-year timeframe South African private equity is showing signs of post-crisis recovery, with returns having trended upwards since 2010. The asset class notched a 17.1% three-year return in June 2013, compared with a survey peak of 19% in March 2012. The All Share Index recorded a three-year return of 17.2% in the June 2013 quarter.
“The steady recovery in global financial markets is evident in the recent performance trends for South African private equity,” Van der Merwe says. “Predicting future trends is not possible, but careful selection of deal opportunities by private equity fund managers and hands-on management of portfolio companies will continue to be important drivers of returns for this asset class.”
Note: Private equity returns are calculated as an internal rate of return (IRR). Returns for listed equity are calculated as a compound annual rate of return.