New asset class in SA: First secondaries fund launched

Source: Supplied. Tivon Loubser, co-fund manager, MeTTa Capital.

Typical private equity funds lock up capital for extended periods – often five, seven or even 10 years. Explains Tivon Loubser, co-fund manager, MeTTa Capital, “This extended holding period means investors can’t easily access their capital until the fund’s term is reached or until there is an exit.

"As a result, many investors seek to access their capital more flexibly, challenging the traditional private equity model and driving demand for innovative ways to sell investments. It’s a significant problem in South Africa and we want to pioneer the solution to provide more liquidity in the market.”

Unlocking investment liquidity

MeTTa Secondaries plans to purchase pre-existing investor commitments in various private equity funds and other alternative investment vehicles. The fund provides existing investors with liquidity, while opening the door for its investors to own a portfolio of strong investments at a discount to capitalise on the unrealised future upside.

For example, South African investors have begun being eligible to exit their Section 12J tax incentives. Other private equity investments and alternatives suitable for a secondary fund include Section 12B and other private equity/credit investments.

Loubser explains: “Investing always carries uncertainty. There’s no guarantee that the company you’ve invested in will successfully exit its position—whether by selling to another party—or that the product you’ve backed will liquidate and return your capital after the investment period. This is where the secondaries fund comes in.”

The secondaries fund purchases an investor’s holding at a discounted price. For example, the fund might acquire a share valued at R2,000 for R1,200. This means investors in the secondaries fund gain access to a share worth R2,000 at a significantly reduced cost. Additionally, these shares are often closer to an exit, which helps mitigate risk while offering the potential for greater capital appreciation.

Metta Secondaries has identified its inaugural investment: a stake in Kalon Venture Partners Fund I (KVP1). KVP1, a Section 12J fund, specialises in building and investing in a portfolio of high-growth technology companies. Its focus is on innovative business models designed to address the evolving needs of both established and emerging institutions, as well as their customers.

The KVP1 fund comprises some of South Africa's largest technology start-ups, including exposure to Ozow, Sendmarc, Carscan, Peach Bots, and others. In its seventh year, KVP1 has a demonstrable track record and a strong executive team.

The first investment tranche has limited availability and a minimum investment of R500,000.

Secondaries explained

A secondaries fund purchases pre-existing investor commitments in private equity funds and other alternative investment vehicles. These funds typically acquire stakes from original investors who want to sell their holdings before the fund reaches maturity, often for liquidity reasons or to rebalance portfolios.

The secondaries market provides sellers with an exit option while offering buyers the opportunity to purchase assets at a discount, potentially benefiting from the remaining upside in the investments. Secondaries funds can invest in various types of assets, including buyout funds, venture capital, and real estate.

International traction

Secondaries funds are gaining popularity worldwide, and demand is rising. A 2024 report from Bain & Company highlights the market’s growth. According to the Secondaries Investor Fundraising Report H1 2024, secondary funds raised 92% more capital globally in 2023 than the previous year. The market saw $34.5bn raised in the first half of 2024.

MeTTa Secondaries is administered by Grovest, one of the largest small-cap administrators in South Africa, with R3.6bn in assets under administration. MeTTa Capital launched South Africa’s first portfolio of market-leading Section 12J funds and has R237m in assets under management.