South Africa private equity investments rise greatly in first quarter

Global Business

South Africa’s economy may have contracted in the first quarter, but investors remain bullish on its growth prospects. That’s highlighted by the 17 percent rise in private equity investments. CCTV’s Angelo Coppola has more.

South Africa private equity investments rise greatly in first quarter

South Africa private equity investments rise greatly in first quarter

South Africa's economy may have contracted in the first quarter, but investors remain bullish on its growth prospects. That's highlighted by the 17 percent rise in private equity investments. CCTV’s Angelo Coppola has more.

Probably taking its lead from the Calpers fund in the US, this invests around 14% of its total assets under management into private equity. In South Africa, the Public Investment Corporation (PIC) got a mandate from Government Employee Pension Fund (GEPF) in 2011 to start investing into private equity. They are now investing around $3 billion.

Private equity fund managers prefer investing in black economic empowerment businesses, specifically those involved in mezzanine funding. That’s the funding between the banks and the unsecured sector. Provided that the black economic partners have experience and understand the business they are venturing into.

Johnny Jones, associate partner at Vantage Capital, said: “If we can structure a good deal for our own investors, which has a good risk return profile, in terms of the upside returns that we will get, relative to the risks and the downside that we protect against, then we are happy to look at that transaction. And if it also fits with the BEE partner then that can also help to de-risk the transaction for us.”

Investments by private equity fund into black owned, black influenced and black companies increased by 77% in 2013. In fact, the top ten deals last year in the private equity space all involved black owned and black empowered companies.

Erika Van Der Merwe from SA Venture Capital Association, told the reporter: “First of all, where the private equity fund manager itself is empowered, and the role that that plays in empowering the deal, so with empowered deals, improving the status of the portfolio company, through the ownership mechanism. Secondly once it’s invested into the portfolio company, bringing about changes and transformation within the company.”

Investors looking for returns could do worse if they didn’t get involved in private equity. In fact, up until last year, those returns were very much healthier than the markets were offering. Things have turned slightly, with the markets running. But there’s no question at private equity is definitely an option to consider, for those institutional investors.