Private Equity Investor Road Shows in South Africa

Many of the largest institutional pension funds making their way through South Africa on a roadshow to review possible private equity deals. In a news piece this morning Martin Arnold of the FT said that, "Investments in African private equity have more than doubled in a couple of years, as big US, European, Middle East and Asian institutional investors have raised their allocation to emerging markets and sought to diversify their portfolio." South African Private Equity firms raised $1B in 2005, $2.35B in 2006, and now with a couple months left to go they are up over $2B in additional investments for 2007.

China, India, and South Africa?

The explosive growth of China and India over the past 5-7 years has really sparked the interest of investors large and small due to their seemingly weak correlation with the US stock market and large returns. The reason why pension funds are going to South Africa is that any move they make needs to be well diversified to manage risk. If they invest in a few international private equity firms, those firms should probably be based in more places than just China and India. Many pension funds hire institutional consultants who are paid highly for their ability to create a risk budget rand run portfolio optimization analytics which include the correlation of returns in different national markets and make recommendations based on that analysis.

What's next?

Usually what starts in the institutional investment world eventually is pushed down through the bank channels, investment platforms, broker-dealers, and retail clients. I would guess that in 3-5 years there are a few South African mutual fund and etf products that do well while the hedge funds and private equity funds in the area continue to grow.


- Richard

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