Johannesburg - South Africa’s second-largest pension fund plans to boost its
allocation to private equity to take advantage of lower asset prices as
economic growth slows.
The retirement fund of state-run power utility Eskom Holdings, which controlled
R130 billion at the end of June, will gradually increase its allotment to
private equity from 3.5 percent, according to CEO Sibusiso Luthuli. He didn’t
give details on how much it would target.
Pension funds are allowed to allocate as much as 10
percent of their assets to private equity.
“We see opportunities from the low economic-growth environment
because it means that you are able to deploy capital and pick up assets at
reasonable prices,” Luthuli said. “In the long term, when economic conditions
do turn around, we should be able to maximise returns.”
The private-equity industry wants to expand by tapping more investment from
pension funds, such as Eskom and the Public Investment Corporation, the
continent’s biggest fund manager, as returns continue to outperform South
African stock and bond indexes.
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The economy will probably remain sluggish this year as exports
falter and high interest rates limit domestic demand, creating opportunities to
acquire distressed companies.
South Africa private equity internal rates of return averaged 18 percent over
the decade through September in rand terms, according to the Southern Africa
Venture Capital and Private Equity Association and Riscura Solutions. That compared
with 13 percent over the same period for the FTSE/JSE Shareholder Weighted
Total Return Index, according to their data.
“It definitely is a Catch-22 situation,” Luthuli said.
“There are opportunities, you can see you will maximise your returns, but
you’ve got to be cautious.”