Local pension and endowment funds are becoming more comfortable with allocating capital to private equity outfits, according to insights from the second volume of the SA Venture Capital Association’s (Savca) latest private equity industry survey.
The second volume of the industry survey, which covered fundraising, investments, exits and funds under management, was published on Thursday. It showed that while the overall amount of funds raised in 2020 declined, the amount from SA capital providers increased.
Headwinds
Total capital raised for late- and early-stage private equity funds fell just more than 22% to R16.9bn in 2020, from R21.7bn the previous year as the economic headwinds caused by Covid-19 made it more difficult to entice investors about the prospects for buyouts and mergers & acquisitions.
Despite that overall slowdown, the appetite for private equity investment by SA pension and endowment funds appears to be growing.
"There’s definitely a contraction in the allocation of funds to emerging markets. SA and Africa also suffered in fundraising in that space last year because of various factors," said Gergana Ivanova, a director at audit and consulting firm EY, which sponsored the report.
"Encouragingly, the local investment community and specifically the pension funds and endowment funds in SA were really the biggest contributors to the fundraising that we saw in 2020," she said.
Funds raised from SA-based investors, which ranged from pension funds to insurers, family offices and banks, increased 200% to R11.1bn in 2020. That helped mitigate the large drop in capital sourced from investors outside SA, which declined 67% to just R5.8bn, after reaching R18bn in 2019.
"Funds raised are also largely being mandated for investments in SA, more than in any other year for the last five years," said Savca.
SA pension funds have not traditionally allocated large portions of their capital to private equity or venture capital, an unlisted asset class that seeks to buy stakes in companies and then sell them later for profit.
The increasing capital being allocated to the asset class, as indicated by Savca’s report, suggests that local institutional investors may be getting more comfortable with this form of investing, which, due to being unlisted, is not under the same public scrutiny as listed equity.
More comfortable
Of the capital raised from investors outside SA, the vast majority (67%) came from European and UK sources, with only 3% originating from the US and 6% from Canada. Asia and the Middle East each accounted for 1%, while no funds in 2020 were raised from the rest of Africa.
Savca’s private equity industry survey also showed that the industry had total funds under management of R205.7bn in 2020, an almost 12% increase on the previous year.
The value of so-called dry powder, or funds available for new investments, remained flat at just more than R30bn, of which about one-third is available for investing in SA. With Mudiwa Gavaza
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