Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association. Picture: FINANCIAL MAIL
Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association. Picture: FINANCIAL MAIL

NEARLY R20bn of undrawn private equity capital commitments are expected to be invested in South Africa over the next few years, KPMG Services’ head of private equity markets for Africa, Warren Watkins, said on Wednesday.

Private equity companies raise third-party finance to deploy primarily into private companies, investments which they later dispose of for capital gain and to return capital, usually over a 10-year cycle.

An annual survey by KPMG and the South African Venture Capital and Private Equity Association shows South Africa’s private equity industry assets under administration increased 10.4% to R126.4bn as at December 31, compared with the previous year.

Of that, R35.5bn was undrawn commitments, with R19.9bn of the undrawn commitments expected to be invested in the local market. An amount of R15.4bn was scheduled for investment in South Africa and other African markets.

Mr Watkins said 56.2% of third-party funds raised for private equity companies was from South African-based financiers — a figure that should give potential overseas investors comfort when investing in South Africa, in that the percentage indicated strong confidence among local investors.

South Africa’s private equity industry raised R14.4bn last year, well up from R10.7bn raised in 2011.

The association’s CEO, Erika van der Merwe, said South Africa’s private equity industry was at a point where much of its investment portfolios were reaching maturity, and assets would need to be disposed of and capital returned, while other acquisitions were expected to be made towards the end of the year.

Mr Watkins said that normally, if there was not a great deal of confidence in the business environment as in the past two to three years in South Africa, an "expectation gap" occurred between buyers and sellers of private equity investments. He said this gap was narrowing, but not yet to the extent that it was triggering a great deal of buying and selling of private equity investments. However, the funding momentum of the private equity industry would help to "force" buying and selling activity to increase, he said.

The survey showed that state agencies such as the Government Employees Pension Fund were investing more funds under their management into private equity.

The amount of private equity assets under administration invested by state agencies rose to 28.8% of the total private equity industry assets under administration last year, from 24% in 2011.

Ms van der Merwe said the Government Employees Pension Fund had been vocal about investing in unlisted investments, compared with a previous focus on listed investments, and the private equity industry was expected to benefit substantially from this change.