The South African private equity sector has delivered its third successive quarter of increased returns, according to the latest report from Riscura Fundamentals which measures the performance of local funds up to December 31, 2011.
Over a rolling 10-year and five-year period, the asset class delivered a pooled internal rate of return (IRR) of 23.1% and 20%, respectively, up from 21.7% and 19.5% at the end of the previous quarter.
The sector also held strong versus leading public indices, with the FTSE/JSE All Share Index (ALSI) returning 14% over a 10-year period and the FTSE/JSE Financials and Industrials Index (FINDI) returning 15.9% compared to private equity’s 23.1% IRR. On a five-year basis the returns are more polarised, with private equity returning 20% compared to the ALSI’s 7.3% and the FINDI’s 8.9%. Over a shorter three-year period the returns on the leading indices shift slightly above private equity with the ALSI returning 16.4% and the FINDI 20% versus private equity’s 17%.
Rory Ord, head of Riscura Fundamentals, says: “Since the dip after the financial crisis, the public markets have done really well and private equity has now caught up to that in the last quarter.”
Ord also notes that private equity’s lag on a three-year basis is in line with the longer-term characteristics of the asset class, commenting: “It can take a long time for returns to bear out. Therefore, [over the shorter term] the valuations can be a little on the conservative side. What we see is that over the longer term the true value of the companies comes out. We look to the longer term as a better indication of how the whole asset class is performing.”
The report also measures the times money return, which is essentially a measure of cash returned and value attributable to investors compared to cash invested. On a 10-year, five-year and three-year basis, private equity funds returned 1.71, 1.67 and 1.46, respectively. This compares to a return of 1.65 over 10 years and 1.31 over a shorter three-year period in the previous quarter.
Measured in US dollars, the IRRs for the asset class are 30%, 19.5% and 26.5% over a rolling 10-year, five-year and three-year basis, respectively. The difference is mainly due to the difference in dollar-rand exchange rates between the start and end of the reporting period.
Ord says: “There are quite big differences in the dollar returns to the rand returns, in both directions. It’s very dependent on when the large cash flows are, and the difference between the rand-dollar exchange rate at the start and the end of the period. At the start of the 10-year period, the rate was almost R10 to the US dollar. The rand has strengthened quite a lot since then, pushing dollar returns higher.” Copyright. HedgeNews Africa – April 2012.
To view the full report, click here.