This is according to Rohan Dyer, head of investor relations at Ethos Private Equity, who believes that this can be done by buying assets in other countries and growing the interests of their South African-based portfolio companies north of the border.
“Within South Africa, those firms with substantial value-add capabilities should be able to achieve good returns by enhancing portfolio-company performance despite the macroeconomic headwinds,” Dyer said.
“Private equity is well-established as an asset class in South Africa. For investors with long-term time horizons, diversification opportunities using private equity are plentiful and attractive given the current elevated valuations of the public markets.”
Dyer, commenting on the release of the RisCura SAVCA South African Private Equity Q2 2014 performance report, also stated that the South African economy’s longer term growth potential is underpinned by two important drivers.
“The government’s infrastructure spending programme over the next five years is substantial and the emerging middle class growth trend still has plenty of upside. However, the near term outlook is challenging,” he said.
“The exchange rate is under pressure, interest rates are rising – albeit from historically low levels – and the risks to growth forecasts are on the downside. Consumption prospects remain weak amid muted credit extension, high indebtedness and unemployment and depressed confidence levels.”
However, the report indicated that the private equity asset class in this market continues to deliver a sturdy performance. Over the ten years to the end of June 2014, private equity funds yielded an annualised rate of return of 18.6 per cent, net of fees.
Private equity returns have also underperformed Johannesburg Stock Exchange (JSE) indices slightly over the latest ten-year period, with the All-Share Index (ALSI) returning 20.9 per cent and the Shareholder Weighted Index (SWIX) returning 21.6 per cent for the same period.
Five-year returns continued their trend of post-crisis recovery and, at 20.2 per cent, are at their highest since the third quarter of 2010. These returns marginally trail the five-year ALSI and SWIX performance.
Rory Ord, head of independent valuation at RisCura, said, “Private equity continues to offer strong performance and diversification benefits, despite the current challenging economic conditions.”
“New fund-raising activity has been well supported by the number of exits that have recently occurred in the industry, and returns continue to show a healthy trend post the financial crisis,” he added.