Private Equity Industry Gaining Momentum
SA's private equity industry is "gaining momentum", says Erika van der Merwe, CEO of the SA Venture Capital & Private Equity Association (SAVCA). If her optimism proves justified it will mark the end for the industry of four years in the doldrums.
Between 2006 and 2008 SA's private equity industry boomed, growing funds managed from R42bn to R109bn. The recession brought that to an abrupt halt, leaving funds managed at the end of 2012 little changed at about R120bn, based on SAVCA's estimate.
"The [SA] industry is healthy and there are a lot of new entrants," says John Bellew, co-head of private equity at law firm Webber Wentzel. "Funds have commitments to spend and are looking for investments but we have yet to see an upturn in deal activity." There were 11 deals in 2012, says Van der Merwe.
A big positive, she says, is improving investor sentiment in the US and Europe towards private equity. "They are looking for good returns, which means they have to consider frontier markets in Africa," she says. Despite conditions for raising capital remaining tough, SA private equity firm Ethos has just raised US$800m for investment in SA and sub-Saharan Africa, she adds.
"SA is the gateway to private equity activity in Africa," says Van der Merwe. "Our market has the experience and the skills needed." The largest deals in terms of value will still be in SA but in terms of numbers there will be more deals elsewhere in Africa, she predicts.
Pension fund regulation 28 amendments will also boost SA's private equity industry, Bellew and Van der Merwe believe. Amendments permit pension funds to invest up to 10% of their assets in private equity and 30% of assets outside SA.
"Regulation 28 is of huge potential benefit," says Van der Merwe. The lead, she adds, has been taken by the government pension fund. "We expect the fund eventually to have private equity investments of R50bn in SA and R30bn in other African countries."
Van der Merwe says the focus of private equity investment in 2013 is likely to be on education, health care and infrastructure. Bellew has a somewhat different view. "Health care perhaps, but I am not so sure about education," he says.
The focus, he believes, is likely to be on property, agriculture, mining and infrastructure, areas in which a growing number of new specialist funds are active. On the availability of deals, he says: "Funds are raising new money. They must be confident."