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Wednesday, October 30, 2013 - 11:07
Fund manager survey

Confidence in home market investing remains high among South African private equity fund managers – despite a decline in global investor confidence in emerging markets. This is according to the results of the annual Global Venture Capital Confidence Survey from professional services firm Deloitte and the U.S. National Venture Capital Association (NVCA).
Compared with the global survey average of 2.8, South African private equity fund managers are more confident about investing in their home market (3.7). Their views on the economic environment are neutral (3.03) compared to their slightly pessimistic assessment of the global economy (2.67). Compared with the global survey average of 2.72, South African respondents ranked their confidence in their ability to raise funds from domestic limited partners (LPs) in the next year at 3.06 – indicating positive sentiment regarding their ability to tap into the local institutional market for investment funding. Confidence in the ability to raise capital from foreign investors is also relatively higher in South Africa compared with the global survey average.
“The track record of Private Equity delivering returns in excess of the JSE makes Private Equity attractive and provides an opportunity to boost returns and diversify portfolios,” says Sean McPhee, Deloitte Partner and head of Private Equity.
Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association (SAVCA), says: “Recent successful fund raising by South African private equity fund managers shows that this confidence is well founded. While more local pension funds are investigating the asset class, international institutional investors are looking to boost their exposure to Africa, including South Africa.”
The ninth annual survey gauged confidence levels of more than 400 venture capital, private equity and growth equity investors in the Americas, Europe, Asia Pacific Israel and South Africa.
It looked at overall investor confidence on the global venture capital environment, market factors shaping industries, and investments in specific geographies and industry sectors. Confidence levels were measured on a scale of 1 to 5 with a score of 5 being the most confident.
Among the key findings of the survey, currently in its ninth year, were that most U.S. venture capitalists are looking towards domestic investment opportunities versus prospects abroad – as emerging markets decline in the eyes of global investors.
The results continue a trend seen in last year’s survey with the U.S rating 3.79, trailed closely by Israel (3.55) and Brazil (3.33). South Africa rated 2.82 (13th out of 15 countries surveyed).
By contrast, when asked about confidence in investing in a particular country, participants rated Brazil at 3.33 (down 22 basis points), China at 3.26 (down 19 basis points), and India at 3.17 (down 7 basis points).
The survey notes that challenges with infrastructure, legal and policy restrictions among other growing pains in the emerging markets which contributed to the shift away from these countries, traditionally seen as growth areas.
But despite global investors expressing confidence in the U.S. as an attractive destination, U.S. based respondents continue to doubt government policy-making to support venture capital, private equity and growth equity investment. Confidence levels dropped from a collective 2.48 in 2012 to an even bleaker 2.17 in this year’s survey.
Local fund managers had a similarly pessimistic outlook. Confidence in the government’s ability to implement enabling and supportive policy was at 1.91 – ranking among the three lowest scoring countries globally, and compared to a global average of 2.51 And while the global view on the home-market environment for listing of assets is neutral, South African private equity fund managers are less upbeat about the domestic IPO market (2.79).
Per industry, global investors expressed the greatest enthusiasm for information technology-related sectors, particularly mobile, cloud computing, enterprise, and healthcare IT. Healthcare also topped the global confidence lists for venture capitalists – with energy/clean technologies were rated the least-favored industry sector.
Domestically, preferred industries for investment were varied. Venture capital fund managers favoured mobile, cloud computing, medical devices and biopharmaceuticals. The most appealing industries rated by private equity fund managers specialising in growth equity were financial services, healthcare, services and IT. And manufacturing, infrastructure, telecommunications and healthcare topped the list of preferred industries rated by fund managers specialising in private equity with leveraged buyouts.
“The enthusiasm amongst South African private equity fund managers for a wide array of industry sectors demonstrates the opportunity in the local market. Indeed, as more managers conclude their fundraising efforts and this capital is deployed, we can expect a pick-up in dealflow announcements,” van der Merwe says.
McPhee says, “The survey results indicate that despite the global trend and an overall pessimism regarding the government’s ability to create an enabling environment, significant domestic opportunities for private equity remain. Local fund managers remain upbeat on the local opportunities, their ability to raise capital and their own ability to maximise returns”.

Copyright © Insurance Times and Investments® Vol:26.9 1st September, 2013
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