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SA investors are missing out on PE opportunity

Anna Lyudvig
Jan. 17, 2017, midnight
304

Word count: 408

While almost half of global endowments and foundations are planing to increase their private equity exposure in 2017, institutions in Southern Africa are still lagging behind their peers, Africa Global Funds has learned.

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While almost half of global endowments and foundations are planing to increase their private equity exposure in 2017, institutions in Southern Africa are still lagging behind their peers, Africa Global Funds has learned.

According to a recent NEPC survey, conducted by the Endowment & Foundation Practice Group, 43% of respondents are increasing their allocation to private equity, with 53% maintaining current exposure levels. 

In line with these findings, Coller Capital’s Global Private Equity Barometer: Winter 2016/2017 found that global investors are optimistic about the medium-term outlook for their private equity portfolios, with around 77% forecasting net annual returns of over 11%, and around a fifth forecasting net annual returns of over 16%.

Nevertheless, in Southern Africa, the allocation to private equity by institutional investors has been slower than has been the case in more developed markets. 

The SAVCA 2016 New Frontiers report, which targeted the top 100 pension funds in South Africa and major pension funds in other SADC countries, showed that nearly two-thirds of respondents had neither a mandate nor a current allocation to private equity investments. 

Erika Van der Merwe, CEO of the Southern African Venture Capital and Private Equity Association (SAVCA), said: “The two key reasons cited for pension fund managers not investing in private equity were an unfamiliarity with the asset class and a discomfort with its liquidity characteristics.”

“The solid performance of private equity relative to other asset classes will, however, likely encourage local institutional investors over time to rethink the inclusion of this asset class as part of their portfolio,” she added.

Van der Merwe believes that many Southern African institutional investors are missing an opportunity by not including private equity as part of a disciplined, diversified portfolio construction approach, given the relative returns performance of private equity, combined with its notable impact characteristics, which include the environmental, social, governance and empowerment objectives achieved through the private equity partnership.

She said that as an industry body for private equity in Southern Africa, SAVCA continues to provide research, training and events that serve to inform stakeholders about the role and nature of the private equity industry. 

“This advocacy work includes engaging directly with institutional investors as well as with policymakers who shape the regulatory framework for investments. Our view is that, in time, there will be a more balanced appreciation amongst Southern African investors for the returns, risk mitigation and impact role that the asset class has,” she said.

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