Cape Town - Investors seeking exposure to frontier markets in Africa, one of the world's fastest-growing consumer markets, are increasingly exploring the sub-Saharan African private equity market.
Erika van der Merwe, chief executive of the Southern African Venture Capital and Private Equity Association (SAVCA), on Wednesday pointed to the Search for Returns survey into private equity in Africa, which found that 80 percent of investors surveyed expected African private equity to outperform African listed equity over the coming decade.
Van der Merwe said the South African private equity industry in particular had delivered healthy returns for investors. She said the industry - which has a 30-year track record of deal-making, exits and fundraising -is set to play an important role in the continued growth of the asset class in other African markets.
The latest RisCura-SAVCA South African Private Equity Performance Report shows that, by mid-2015, the South African private equity industry delivered a 10-year internal rate of return of 21.7 percent, up from 20.5 percent in March 2015.
This compares favourably with the 17.1 percent return from the FTSE/JSE All-Share Total Return Index (ALSI) over the equivalent 10-year period.
Van der Merwe said the emergence of specialist funds dedicated to focused sectors and the trend towards funds with a multi-country focus were proof that the South African private equity industry was maturing.
The industry has more than R170bn in assets under management and many new South African-managed funds now have a mandate to invest outside South Africa. She also noted that South Africa had a proven track record in a range of exit options, and thus a way to realise returns.
“With this track record, and the ability to attract funds from institutional investors from across the globe, the industry is becoming a notable role-player in drawing capital into the broader sub-Saharan Africa region,” she said. “South African private equity fund managers are deploying capital for deals in southern, west and east Africa, for instance, and moreover are providing the strategic, financial and operational support to their South African-based portfolio companies to expand into new African jurisdictions.”
She said that private equity would play an increasingly active role in funding infrastructure on the continent.
“By partnering in capital-rich projects ranging from power plants, renewable energy and water infrastructure, private equity is helping to boost productive capacity and economic potential.”
She added, with African capital markets often still in the early stages of development, private equity was an important source of capital as well as strategic guidance for small, medium-sized and even some larger businesses across all sectors in Africa.
There was another benefit for businesses, Van der Merwe said, in terms of corporate governance.
In a recent survey amongst companies into which private equity funds are invested, 70 percent of respondents said that a key benefit was that private equity investors drove good corporate governance, while 62 percent said they valued private equity partners for strategic guidance given.
AFRICAN NEWS AGENCY