Survey results: SA private equity fundraising activity surges to a 13-year high

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With 2024 being referred to as the ‘ultimate election year’ on both local and global fronts, PE firms were called to navigate their way through a frenzied economic climate in the lead up to voting day and beyond. Still, business sentiment remained positive heading into the new year, with fundraising activity rising to a 13-year high.

Consistent rise in fundraising

This was one of the key findings of the recently released Savca Private Equity Industry Survey 2024 (measuring the 2023 period), which is conducted annually by the South African Venture Capital and Private Equity Association (Savca). The survey found that funds raised in 2023 were 43% higher than the previous year, closing off at a high of R28.1bn.

59% of these funds were raised from investors outside of South Africa – an encouraging indicator of the industry’s growing attractiveness to the international investment community and yet another indicator of an industry in rapid recovery after a three-year, post-pandemic downturn. Along this vein, European and US investors made up 45% and 22% of investments from outside South Africa respectively.

Commenting on this is Tshepiso Kobile, chief executive officer of Savca, who says that, “The engines of the PE industry are gaining traction, and all signals point to noticeable growth and even untapped potential.

"On a global scale, PE is up against some serious odds, including economic uncertainty and political upheaval. Locally, the picture looks very much the same, although – true to its reputation for being resilient, PE has continued to push through and demand attention as an asset class, continuing to return capital back to investors and drive impact.”

Evidence of this can be seen in the marked optimism of local PE firms when compared to their global counterparts. The PE survey found that Southern African PE firms are more optimistic about an increase in exit activity in the next six months than global PE firms – currently 41% of local firms expect an increase of 10% more as opposed to only 24% of global firms who expect the same.

A dramatic increase was also seen in the proportion of investments (by number) made by PE firms with Funds Under Management (FUM) of over R5bn, which stands at 58% in 2023, compared to 11% in 2022. Likewise, 51% of respondents reported their expectation of seeing accelerated growth of their FUM, compared to just 38% in the previous year.

ESG and impact front and centre

According to the survey, it’s full steam ahead for PE, and ESG (Environmental, Social and Governance) and impact investing are leading the charge. The past few years have seen ESG rise in prominence as an important consideration by PE firms when making investments and similarly, a key expectation of LPs.

As per this year’s survey, 35% of local PE firms now have dedicated ESG professionals. In addition, 55% of respondents said that their fund has a specific impact investing mandate.

When asked about the elements of ESG that these investors are placing particular emphasis on, 92% of respondents reported that their investors require measurement of portfolio company performance against specific metrics. Increased reporting on ESG and the tailoring of investment strategy to meet ESG requirements ranked as second and third most prevalent investor focus areas, respectively.

In tandem with this consistent push for a greater focus on sustainability both in terms of the social and environmental aspects of PE investments, survey respondents also commented on the nature of their ESG policies.

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66% of respondents said that the top component that makes up their ESG policy is adhering to external global sustainability initiatives (for example, Principles for Responsible Investments), with the responsibility for setting ESG priorities placed at the highest levels within the firms (i.e. at Board level).

These findings are indicative of a PE industry in which “ESG concerns have now become embedded in decision making and are seen as integral to operational success,” according to Kobile. “This in turn, speaks volumes about the ability of the PE sector to contribute to a growing greener, digitised and more inclusive economy.

"We should never underestimate the capacity that sits within PE to foster resilience in ventures. This is evidenced by the growth in revenues, employment and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) that was reported by the PE portfolio companies for the 2021 - 2023 measurement period, in a battling economy.

With more and more PE firms keeping this objective top of mind, we will undoubtedly continue to see great examples of the positive contribution the industry can make towards our broader national goals,” she adds.

PE driving transformation progress

This was in fact one of the chief findings to emerge from the nation-wide analysis of the role of PE and Venture Capital (VC) in supporting and delivering on national policy objectives. The #InvestingForGrowth analysis was commissioned by Savca and conducted by research firm, Intellidex (now Krutham) in 2023.

Objectives such as job creation featured prominently in the final report, which found that while national employment growth found itself in the red at -4.2%, employment growth within PE investee companies stood at 4.2%. The report also found that PE and VC firms have thus far made an important contribution towards improving the BEE performance of the companies within their portfolios.

According to the report, investee companies reported significant improvements on several BEE scorecard components, namely ownership (up by 54%), management control (up by 38%), skills development (up by 68%), enterprise and supplier development (up by 71%) and socioeconomic development (up by 63%).

This coincides with the findings of this year’s PE Survey, in which fund managers reported improving diversity both within their Boards, as well as within their teams, with an increasing proportion of PE firms with over 30% women promotees across all levels. A further 62% of PE firms reported having more than 50% black management – up from 60% last year.

Concluding her remarks, Kobile noted that the PE sector is transforming the local investment landscape. “In line with Savca’s 2024 theme of ‘Synergy with Collaboration,’ we are confident that a truly inclusive and progressive industry where the unique qualities of all members of our society are harnessed, is well within our grasp.”