Do South African private equity firms with portfolio companies in the rest of Africa have better returns than the Johannesburg Stock Exchange (JSE) Top 40 index companies with operations in the rest of Africa?

Abstract

The performance of private equity companies compared to that of major stock exchange indices has been well researched internationally. Benchmarking the performance of private equity enables investors to build a compelling investment case for investing in this asset class, as a channel to diversify their portfolios. The issue of liquidity and higher fees associated with private equity when compared to other asset classes, is considered to be one of the main factors that reduce investor appetite for private equity. This study focuses on the performance of South African private equity firms with portfolio companies in the rest of Africa compared to that of JSE Top 40 companies with operations in the rest of Africa. The returns of the private equity firms are compared to those of the JSE companies over a ten-year period. Private equity firms are determined to have outperformed the JSE companies. An average return of 25.93% was achieved by private equity compared to the average return of 14.35% for JSE companies. These returns were calculated gross-of-fees for both groups therefore net-of-fees and adjusting for risk may alter the findings of this study. Gross-of-fees, private equity companies performed better than the JSE companies for the period reviewed.