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November 22, 2019


This article is the sixth in a series of seven, exploring private equity investment.

African private equity returns have lagged their global counterparts in the past. In the same breath, South Africans’ investment into Africa (excluding South Africa) generally has also been disappointing. Nonetheless, deep down we all think that the “African growth story” will bear fruit – we just don’t know when, but we don’t want to miss out on that opportunity.

It does seem clear that the tides are turning towards Africa. The Economist magazine’s selected front pages (see below) offer a concise summary of the world’s view towards Africa. South Africa is likely to benefit from this growth story too.

This story is echoed by a comparison of growth rates in Africa over time, which are clearly increasing, based on the chart below from an EY Africa survey (“CAGR”= compounded annual growth rate).

Investment trends in South Africa have not always followed global investment markets in the past. Globally, investment in private equity has grown substantially. The average allocation to alternative asset classes – with private equity being one of the main recipients – within retirement funds globally was recorded as approximately 24% by SAVCA (the South African Venture Capital and Private Equity Association) in their Pension Report 2016. In the USA there is talk of private equity overheating and headwinds are experienced due to excessive capital that has been thrown in that direction, leading to a potential overdevelopment of the industry. In South Africa, we have not seen any such growth, but we are anticipating it.

The private equity industry in the USA seems to have matured, but this is not the case in South Africa, where we can still look forward to the emergence of private equity. The allocation to private equity in South African retirement funds (excluding the GEPF) was about 0.3% at the end of 2017.

Global investors in private equity were surveyed regarding their regional private equity focus, which indicated they are shifting their focus towards emerging markets including Southeast Asia, India, Latin America (excluding Brazil), Sub-Saharan Africa and others.

In summary, from a bottom-up perspective (driven by GDP numbers in Africa) and top-down perspective (driven by global investor allocations and focus), it seems African private equity is expected to be the winner in the relative game. Successful investors will need to be patient.

Willem le Roux
Principal Investment Consultant and Actuary