Private Equity in South Africa

Private equity in South Africa has grown so much over the years. In 2015, here is a snapshot of fund-raising in South Africa: -

• In 2015, 56.2% of all third-party funds was pension endowment funds. Back in 2014, it was just 25%.
• Government and other agencies accounted for 24.4% in 2015. In 2014, it was around 57.7%.
• The most important factor is the increase in percentages of private equity funds. Private equity funds captured around 10.3% of total funds in 2015. In 2014, it was only 4.4%.

That is not it. A fascinating part is during 2015, South Africa was the largest source of fund-raising, around 54.7%, which is much more than the UK (20.7%) and the USA (9.8%).

As you can see, private equity in South Africa has significantly improved over the years, especially in 2015. Now, we will look at the major trends of private equity in South Africa: -

• Fundraising increased drastically in 2015. If we compared the fund-raising in 2014 with the fund-raising in 2015, we would see that it has increased by almost 150%, around ZAR 17.2 billion. In 2014, the fund-raising was ZAR 11.8 billion, and in 2015 it became ZAR 29 billion.
• Black Economic Empowerment (BEE) has been a significant feature throughout, which is why the private equity recruitment process has been different. All people are treated equally, and in recruitment, a 50-50 balance is always maintained to empower people who are in a disadvantageous situation and were treated unfairly.
• In 2015, the investment activity reached ZAR 10.5 billion, out of which ZAR 4.4 billion was from follow-on investments, and the rest (ZAR 6.1 billion) came from new investments. In 2014, the investment activities were better. In 2014, the investment activity reached ZAR 13.5 billion.

From the above discussion, it is clear that private equity in South Africa is one of the emerging places in the world. And every year, the level of investments and private equity funds will keep increasing, ensuring that there will be more opportunities for individuals wanting to join private equity and make a career in the same domain.

If you are new to private equity, you can look at this guide on What is Private Equity?

Like any private equity firm globally, South African private equity firms provide similar services. They provide services by investing in parent and subsidiary companies. Let us have a look at how they operate the whole process before investing in any new company: -

• Scrutiny: If you know about due diligence, this is what private equity firms do at the beginning. Before investing their money into any company, they go through the whole business and understand multi-faceted aspects to see whether there is anything that they should be worrying about if they invest in the company.
• Multi-risk factor: That brings them to see many risk factors of a business. For example, every private equity in South Africa first looks at employment, corporate governance, financial and operations, environment, and social and community. And then, they investigate each factor to find out any possible threat. That is required because it is an investment of millions of dollars, and if they make any mistake, it may cost them a lot.
• Controllable factors: They also consider another aspect along with risk factors. They want to know that among all the factors mentioned above (employment, operations, etc.), how many can they directly control, and how many can they impact? If these controllable factors are more in comparison with the uncontrollable factors, they decide to invest in the company. They want to generate maximum returns so their profit share can increase and showcase more control over management.
• Codes for Responsible Investing in South Africa (CRISA): Every private equity in South Africa maintains the codes for responsible investing in South Africa. Yes, profit-making is important; but it is equally important to ensure economic, social, and environmental development with every investment a private equity firm makes.

Now, let us look at the top private equity firms in South Africa. These firms are not all from South Africa, but they all have investments in South Africa.

• Helios Investment Partners: This private equity firm was founded in 2004. It is a $3 billion Africa-focused firm. It mainly operates within the periphery of family-owned businesses and re-investment entities. It managed a $110 million fund on behalf of the U.S. Government’s Overseas Investment Corporation.
• Carlyle Sub-Saharan African Fund: This private equity firm is not from Africa but the U.S. It raised over $698 million in investments in Africa. It also has a stake in Nigeria’s Diamond Bank.
• Blackstone Group: You already know the name, don’t you? Blackstone Group is one of the largest private equity firms in Africa. And it has invested over $2 billion in many large-scale investments.
• KKR & Co.: Another name, and you know it as well. Even if it is new in the African region, it is on its way to becoming one of the most influential private equity firms in Africa and plans to invest more than $100 million.
• Actis Capital LLP: This is one of Africa's most impactful private equity firms. It was founded in the year 2004 in the UK. In 2014, it invested $95 million in Paycorp Holdings Ltd. in South Africa.
• Catalyst Principal Partners: This firm was established in 2009. In 2011, it raised $69 million for various investments. It has also recently invested $14.6 million in Chemi & Cortex Ltd., a Tanzanian firm.
• Ethos Private Equity: In the last ten years, Ethos private equity firm has raised around $1.6 billion in aggregate capital. The firm invests in Sub-Saharan Africa, with its main focus being South Africa.
• Old Mutual Private Equity: This private equity firm is one of the best in South Africa. In the last ten years, it has already raised around $1.3 billion in aggregate capital. The private equity firm manages both secondary funds and direct equity funds.
• Capitalworks Equity Partners: This private equity firm has a fund called “private equity fund II,” which has raised $270 million. The fund focuses on mid-market organizations in South Africa.

In the South African private equity market, things are quite different. Let us have a look at the approaches you need to take if you would like to get into private equity in South Africa: -

• Networking: It is a must. As you already know, you would not get any ground in investment banking and private equity. It is true in South Africa, also. So, you need to network as if everything depends upon it because it does. The more people you know, the more you will be able to get internships and interviews for full-time opportunities.
• Undergraduate degree: In private equity in South Africa, it matters a lot to have a degree from a top-notch university. Even if they judge you based on BEE (Black Empowerment Program), you still need a top-notch degree. Furthermore, if you want to enter into private equity after graduation, you need to plan. Entering this tough private equity market would be difficult without a good degree and a couple of internships.
• Internships: Internships are one of the most important things you can do. And go for 6 months to 12 months of internships for maximum benefits. In the South African private equity market, there is a practice. Many private equity firms offer analyst programs from time to time. It is not always available, though. But if you have good grades and have passed out from a top-notch university, you can take advantage of this program. They have two options for you – pre-MBA and post-MBA. It would help if you had the highest degree of honors and great numerical and analytical ability for the pre-MBA option. You must have recently completed your MBA from a leading school for post-MBA applications. It is a 24-month program where you will learn all the trade secrets by working with full-time employees. If you can complete the program and demonstrate great competitiveness, one will hire you full-time into the private equity firm.
• Interviews: The approach to interviews is similar. You need to go through 3-4 rounds of interviews. And the first round would be the “fit” round, where you need to demonstrate whether you are a perfect fit for that particular private equity firm or not. Then you will be sitting with an associate and analyst. And finally, you will sit with the Managing Director and HR for the final round. Private equity in South Africa likes to hire local candidates. So, if you are a native, it will be your added advantage. If not, you should know the culture and the language well to get through.

Two things are most important in private equity in South Africa.

These are South African private equity firms' most significant components of culture.

• The first is equality. Through BEE (Black Economic Empowerment), the recruitment process hires white and black in a 50-50 ratio. That’s why there is always a huge gap between the interview sessions and the time of offers.
• The second is sustainability. Most private equity firms in South Africa ensure that every investment is based on CRISA (Codes for Responsible Investing in South Africa), an extension of UN Codes. Profit is the central investing theme, but sustainable economic, social, and environmental development is always considered.

Other than that, the working hours would depend on the size of the funds that particular funds handle. The operating hours are often quite high for big funds, which gives no room for work-life balance. On the other hand, small funds have lesser working hours per week.

The salary of a private equity analyst is quite good in South Africa. Let us look at the average salary of private equity associates in South Africa from the survey of payscale.com.

source: payscale.com

The average salary of a private equity associate in South Africa is ZAR 573,913 per year. But even after having such a salary, not many people stick to the job for over 10 years. It was also found that to remain in this job and perform well, one skill is important: financial analysis.

Now, we will look at how experience affects salary: -

source: payscale.com

And lastly, we will look at the two most important skills (financial statement analysis and financial modeling) that affect the salary of private equity associate in South Africa –

source: payscale.com

As we know from the data of payscale.com, no one stays longer than 10 years in private equity. The reason may be the cut-throat competition in the market and very long working hours.

The natural tendency is to opt for investment banking since the salary for investment banking in South Africa is almost ZAR 100,000 higher per annum.

There is another option also for private equity professionals. They can go for corporate development careers where the working hours are much lesser, and the salary is in a similar range.

Private equity in South Africa is quite ripe, but opportunities are still to tap into. As a foreigner, you would have a good chance if you knew the native language and completed your higher education at a top-notch university. Black Economic Empowerment (BEE) may inspire diversity and inclusivity, but it slows down the process of recruitment.

This article is a guide to Private Equity in South Africa. We discuss services, recruitment processes, top firms, salaries, and exit opportunities. You may also have a look at the following article to learn more about private equity: -

• Top Private Equity Firms in Germany
• Private Equity in France
• Private Equity Services Offered in Russia
• Private Equity in India