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.
The survey found that 80 % of investors 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 %, up from 20.5 % in March 2015.
This compares favourably with the 17.1 % 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 R170 billion 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 realize returns.
"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."
Private equity was an important source of capital
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 that, with African capital markets often still in the early stages of development, as well as strategic guidance for small, medium-sized and even some larger businesses across all sectors in Africa.