Private Equity in South Africa
How is private equity in South Africa? As a foreigner, can you go there and thrive? How is the salaries like? Can anyone have a good background to get a full-time job in private equity?
In this article, we will investigate the above questions and will try to find the answers for them. Let’s have a look at the sequence of the article.
In this article, we will talk about the following –
- Private Equity Market in South Africa Overview
- Private Equity Firms in South Africa – Services Offered
- Top Private Equity firms in South Africa
- Private Equity Recruitment Process in South Africa
- Culture in Private Equity in South Africa
- Private Equity Salaries in South Africa
- Private Equity Exit Opportunities in South Africa
Private Equity Market in South Africa Overview
Private equity in South Africa has grown so much over the years. In 2015, here’s a snapshot of fund-raising in South Africa –
- In 2015, the source of 56.2% of all third-party funds was pension endowment fundsEndowment FundsEndowment fund refers to that investment fund where the donor initially contributes money to a foundation as donations. These foundations comprise hospitals, universities, churches and non-profit organizations. It has a structured mechanism where the principal sum is invested to generate income for running the foundation.. Back in 2014, it was just 25%.
- Government and other agencies accounted for 24.4% in 2015. In 2014, it was more – around 57.7%.
- The most important factor is the increase of percentages in private equity funds. Around 10.3% of total funds were captured by private equity funds in 2015. In 2014, it was only 4.4%.
This 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 during 2015. Now, we will look at the major trends of private equity in South Africa –
- The fund-raising 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% that is 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, and that’s why the recruitment process in private equity has been different. All people are treated equal, and in recruitment, a 50-50 balance is always maintained so as to empower people who are in a disadvantageous situation and were treated unfairly.
- In 2015, the investment activity had reached ZAR 10.5 billion, out of which ZAR 4.4 billion was on 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’s 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 on increasing, which ensures that there would be more opportunities in the near future for individuals wanting to join private equity and to make a career in the same domain.
If you are new to private equity, you can have a look at this guide on What is Private Equity?
Private Equity Firms in South Africa – Services Offered
Like any private equity firm in the worldPrivate Equity Firm In The WorldPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP., South African private equity firms provide similar kind of services. They provide services by investing in parent and subsidiary companiesSubsidiary CompaniesA subsidiary company is controlled by another company, better known as a parent or holding company. The control is exerted through ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries are either set up or acquired by the controlling company.. Let’s 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 exactly 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’s 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 businessRisk Factors Of A BusinessRisk factors in Business are constituents, circumstances, or causes, responsible for interruption, or, disrupting the business activities or operations, expectations, plans, objectives, or strategies of a business or an investor.. For example, every private equity in South Africa first looks at the employment, corporate governance, financial & operations, environment, and social & community. And then, they investigate each factor to find out any possible threat. This 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: Along with risk factors, they also consider another aspect. They want to know that among all the above-mentioned factors (employment, operations, etc.), how many they can directly control, and how many they can have an impact over? If these controllable factors are more in comparison with the uncontrollable factors, they decide to invest in the company. At the end of the day, they want to generate maximum returns so that their share of profit can be more, and they can 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 along with that, it’s equally important to ensure economic, social, and environmental development with every investment private equity firm makes.
Top Private Equity firms in South Africa
Now let’s 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 as well.
- Helios Investment Partners: This private equity firm is founded in the year 2004, and 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 US Government’s Overseas Investment Corporation.
- Carlyle Sub-Saharan African Fund: This private equity firm is not from Africa. It is from the US. 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’s new in the African region, it’s 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 the most impactful private equity firms operating in Africa. 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 invested $14.6 million in Chemi & Cortex Limited, a Tanzanian firm recently.
- Ethos Private Equity: In the last 10 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. It has already raised around $1.3 billion in the aggregate capital in the last 10 years. 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.
Private Equity Recruitment Process in South Africa
In the South African private equity market, things are quite different. Let’s have a look at the approaches you need to take if you would like to get into private equity in South Africa –
- Networking: It’s a must. As you already know that without networking, you would not get any ground in investment banking, and in private equity, it’s true in South Africa also. You need to network as if everything depends upon it because it does. The more people you know, the more you would be able to get internships and interviews for full-time opportunities.
- Undergraduate degree: In Private Equity in South Africa, it matters a lot that you have a degree from a top-notch university. Even if you would be judged on the basis of BEE (Black Empowerment Program), you still need a top-notch degree. If you want to enter into private equity after your graduation, you need to plan beforehand. Without a good degree and a couple of internships, it would be difficult to enter into this tough private equity market.
- 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’s not always available, though. But if you have good grades and you 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. For the pre-MBA option, you need to have the highest degree of honors along with great numerical and analytical ability. For post-MBA applications, you need to complete your MBA from a leading school recently. This is a 24-month program where you will learn all the trade secrets by working with full-time employees, and if you can successfully complete the program and demonstrate great competitiveness, you will be hired 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 MD and HR for the final round. Private equity in South Africa likes to hire local candidates. So if you’re a native, it will definitely be your added advantage. If not, you should know the culture and the language well to get through.
Culture in Private Equity in South Africa
Two things are most important in Private Equity in South African.
These can be called the most significant components of culture in South African private equity firms.
- The first is equality. Through BEE (Black Economic Empowerment), the recruitment process always hires both 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 of the private equity firms in South Africa ensure that every investment is based on CRISA (Codes for Responsible Investing in South Africa), which is also an extension of UN Codes. Profit is, of course, the central theme of investing; but along with that, the sustainable development of economic, social, and environmental factors are always taken into consideration.
Other than that, the working hours would depend on the size of the funds that particular funds handle. For big funds, the working hours are often quite high, which gives no room for work-life balance. On the other hand, small funds have lesser working hours per week.
Private Equity Salaries in South Africa
The salary of a private equity analyst is quite good in South Africa. Let’s have a look at the average salary of private equity associate in South Africa from the survey of 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 over 10 years. It was also found that to remain in this job and perform well, one skill is important, and it is “financial analysis.”
Now, we will look at how experience affects the salary –
And lastly, we will look at the two most important skills (financial statement analysis and financial modelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact.) that affect the salary of private equity associatePrivate Equity AssociateA Private Equity Associate assists other senior associates and partners in identifying a well-suited target to invest in and reaping the benefits by selling it at a profit, as well as overseeing due diligence, handling communication, and preparing financial models. in South Africa –
Private Equity Exit Opportunities in South Africa
As we get to 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 AfricaInvestment Banking In South AfricaAfrican Bank Limited, Bank of Baroda, Bank of Taiwan, Citibank NA, and Deutsche Bank AG are some of South Africa's major investment banks. is almost ZAR 100,000 higher per annum.
There is another option also for private equity professionals. They can go for corporate development careersCorporate Development CareersThe top four roles in a corporate development career are Analyst, Associate, Vice-president, and Director. Their primary responsibilities include activities such as planning, implementing, and regulating organizational strategies for a company's growth and development. where the working hours are much lesser, and the salary is in a similar range.
Private equity in South Africa is quite ripe, but there are still opportunities to tap into. As a foreigner, you would have a good opportunity if you know the native language and completed your higher education from a top-notch university. Black Economic Empowerment (BEE) may inspire diversity and inclusivity, but it slows down the process of recruitment.
This article has been a guide to Private Equity in South Africa, their services offered, the recruitment process, their culture, top private equity firms in South Africa, salaries, and exit opportunities. You may also have a look at the following article for learning more about Private Equity –