SAVCA Private Equity Conference 2023: Day one report back

The first day of the 2023 SAVCA Private Equity Conference – this year embracing the resilience of the local PE landscape – kicked off at Cavalli Estate in Somerset West yesterday. This year marks the 15th edition of the annual event, which brings together the brightest minds in the PE sector, including key industry players and thought leaders for a two-day gathering to explore the current state and future of the sector, as well as the opportunities it offers investors.

The topic for each panel discussion was collated according to the theme of “Resilience” – a testament to the robust nature of the local landscape against a number of inescapable local and global challenges. This year has pitted the industry against much socioeconomic hardship as investors, fund managers and other stakeholders attempted to navigate their way through a gauntlet of rising interest rates, high inflation and an impending ‘cost-of-living’ crisis. Despite these hurdles, the private equity asset class has emerged intact, with many deals transpiring during the 2022 period.

In the words of SAVCA Chairman, Lelo Rantloane, “funds were raised and deals were done,” despite the persistence of these pressing challenges. There is therefore much to celebrate, according to Tshepiso Kobile, who hosted her first PE Conference as the newly appointed CEO of SAVCA. As she explained, this past year saw renewed interest in emerging markets, growth in many of the continent’s private markets and a comeback for Southern Africa in terms of the strength of its PE infrastructure.

The official host for this year’s conference was Bruce Whitfield, award-winning journalist and author, who opened with the remark that “in an environment wherein shooting yourself in the foot and scoring your own goals is the order of the day, being resilient can be exhausting.” However, staying true to the trademark South African spirit of eternal optimism, hope remains forever on the horizon.

Regulation 28 and the future of asset allocation

The conference officially commenced with a panel discussion on Regulation 28 and its implications for local institutional and private investors. The final amendments to Regulation 28 of the Pension Funds Act came into effect in January this year. As per these amendments, the limit between hedge funds and private equity has been split – there is now a separate and higher allocation to private equity assets, which has increased from 10% to 15%.

For panellist William Dlanga Nkutha, Deputy Principal Officer of the University of Cape Town Retirement Fund (UCTRF), this year involved laying the groundwork for the implementation of new policies aligned with these legislative changes. For the UCTRF, the amendments have fueled a renewed focus on the “tangibles,” or the visible impact of PE funds. With PE now a larger part of the mandate, this focus on impact will play a key role in steering the allocation of funds going forward.

For Soyisile Mokweni, Chairman of the South African Consolidated Retirement Fund, the latest amendments to Regulation 28 signaled ‘business as usual’ for a fund that has enjoyed the relative flexibility the legislation has afforded managers for many years. The challenge for funds going forward will involve meeting the new reporting requirements of Regulation 28. “As time goes on, we anticipate that asset managers will provide funds with access to better quality data, which will assist greatly in formulating more accurate reporting processes.”

The amendments are also purposed towards explicitly enabling and referencing longer-term infrastructure investment by retirement funds, by increasing maximum limits that these funds may invest in.

Suvira Bodha, Head of Alternatives & Portfolio Manager, Sanlam Investments: Multi-Manager explains, Regulation 28 will necessitate funds to strike a delicate balance between focusing on local infrastructural development while also upping the ante on the offshore investment front. The long-term success of PE funds and the efficacy of capital allocators will rely heavily on their ability to navigate these two imperatives.

And, according to Kutlwano Mokhele, Member Benefits Coordinator: National Union of Metal Workers (NUMSA), the definition of ‘infrastructure’ as determined by regulators in the near future will play an important role in how this new investment philosophy transpires “on the ground – where it matters most.”

Where we are and where we’re going

During his session, Jeremy Gardiner, Director of NinetyOne, was entertaining as he was insightful, offering his breakdown of the current global economic environment and how this has affected Southern Africa.

As he explained, both the USA and the UK markets are performing “better than expected,” despite a number of anticipated headwinds. China, as it emerges from its zero-COVID policy, is making a slow but steady resurgence – a factor that bodes well for emerging markets. The ongoing conflict between Russia and the Ukraine will continue to limit any progress made towards post-pandemic recovery. However, on the local front, positive prospects are indeed on the cards. The relative stability of the US and UK markets as well as the recovery of the Chinese market is good news for South Africa from a macroeconomic perspective, as a rebounding Chinese market may bring support for local commodities. Emerging markets such as South Africa are the “place to be,” Gardiner explained. If the country can succeed in finding a place of stability amidst an environment in which ”all our problems have converged,” we can position ourselves for much-needed political transformation. Long-awaited changes in the social and political realms may very well be triggered by what we deem a ‘crisis’ – this is the hope to which we must cling in these turbulent times.

ChatGPT and the future of investments

Next on the agenda was Craig Wing, Digital/AI Specialist who presented a talk entitled: ‘ChatGPT: Confronting the Future.’ His presentation kicked off with a video that spoke to the application of artificial intelligence in venture capital and investments.

According to Wing, AI’s ability to analyse large volumes of data and decipher complex datasets presents an opportunity for AI tools to be used to find and predict investment opportunities. AI-powered chatbots are also being used to automate investor communication and contribute to operational efficiency. Sentiment analysis tools can be used to record and interpret data shared on social media and the internet – the results of which can prove invaluable as ways to gauge the feasibility and future performance of certain sectors. These insights, as he later shared, were generated by ChatGPT and created using an automatic video content creator tool. The process of creating this content; which would have involved a month’s worth of work and input, took AI seconds to produce after a half an hour of entering the appropriate command prompts. Wing succeeded in practically demonstrating the effectiveness of AI as a tool that can enable many of the manual work ordinary workers perform on a daily basis.

But, as he explains, this does not signal an age in which machine will conquer man. Instead, AI should be used to automate the work that humans no longer need to spend valuable time and resources on. AI is therefore a “companion” rather than our “commander.” Because, as Wing explained, nothing can replace the value and relatability of human contact, particularly in the world of investments where principles like compassion and trust go a long way in helping people build meaningful relationships.

Closing on a note of inspiration

Day one of the 2023 SAVCA PE Conference concluded with a panel discussion entitled: ‘A candid conversation on transformation in the Private Equity industry.’ Facilitated by Melanie L de Nysschen, Executive: SAVCA, the panel provided a segue for representatives from USAID to share their enthusiasm to meet and network with local fund managers and to work together in order to uplift the sector.

Robin Padberg, Chief of Party for the USAID Southern Africa Mobilizing Investment initiative expressed his threefold vision for collaborating with local funds: creating economic wealth, creating jobs and promoting inclusivity. Expanding on this was Allan Hackner, Project Development Specialist: USAID Southern Africa who said that: “increasingly, investors are looking to emerging markets for better returns and more promising opportunities. In a climate in which lack of access to finance presents a very real challenge, initiatives like those of USAID can fill the gap by prompting the deployment of finance for SMEs whose risk return profile has previously prevented traditional investors from deploying capital in their direction.”

A testament to the power of a concerted drive towards local upliftment and specifically, the empowerment of women fund managers, was Madichaba Nhlumayo, Founder and CEO of Ditiro Capital. As a beneficiary of SAVCA’s Women Empowerment Mentoring and Incubation programme, she announced that the fund recently celebrated its first close after several years of trading, having raised R360 million. The programme was launched in 2021 with the support of the USAID.

As she explained: “our journey together has been propelled by shared values. We are passionate about his country and the investment opportunities that exist to reap superior returns and make a positive impact on the ground. The members of the pension funds who have backed our efforts are people from the villages and townships many of us were born in. It is therefore an honour to optimise their hard-earned money and to promote a sense of stewardship as our team makes the important decisions that will ultimately uplift and empower real people on the ground.”

Another programme beneficiary, Makole Mupita, Director of Mahlako Financial Services shared these sentiments. After successfully raising R1.7 billion in a bid that began in 2018, Mupita is dedicated more than ever to using private equity to address the all-important issue of energy security. Having focused their collective efforts on this objective, Mupita and her team have lived up to their “responsibility to deploy the available capital in the best and most efficient way possible and to get the best returns for the South African pensioners whose funds have served as important building blocks for success.”

Closing off the final panel discussion for the day, she shared her opinion that: “if we want to grow South Africa, we need to invest money into private markets and support fund managers who represent the demographics of this country. In that way, we can ensure that everyone has a chance to participate and reap the rewards of Southern Africa – and Africa at large, being the next global economic frontier for investment.

Onwards to day two

Closing off the conference was host Bruce Whitfield, who invited attendees to attend the dinner and drinks networking session to round off the day’s events. Day two of the conference will kick off this morning and will offer more stimulating speaker sessions and knowledge-sharing opportunities.