SAVCA Private Equity Conference 2024: Day one round-up
The first day of the 2024 SAVCA Private Equity (PE) Conference kicked off at Cavalli Estate in Somerset West yesterday.
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The first day of the 2024 SAVCA Private Equity (PE) Conference kicked off at Cavalli Estate in Somerset West yesterday. This year marks the 16th edition of the annual event and brought together key industry players and thought leaders for a two-day gathering to explore the current state and outlook of the private markets asset class, as well as the key trends and factors that are currently influencing it.
Each panel discussion was aligned to the theme of “Synergy with Collaboration” – a testament to the imperative need for all stakeholders to come together and innovate through the various challenges that are impacting the sector from both an economic and socioeconomic perspective.
Kickstarting the event for the day was Vuyo Ntoi, the newly appointed Board Chairperson of SAVCA. In his opening address, Ntoi highlighted his appreciation for all industry stakeholders, delegates, sponsors, the incumbent SAVCA team, CEO Tshepiso Kobile, as well as his predecessor, Lelo Rantloane. He also highlighted the crucial role the PE asset class has played and will continue to play in the South African economy. “The private equity sector has become a key driver of economic growth and development. As we continue to experience the complexities of the current climate, PE will remain a vital source of economic stimulation going forward. This is particularly true when it comes to energy and infrastructure-related investments, both of which make significant contributions to environmental development and sustainability. As we gear up to officially commence the proceedings, let’s ensure we make the SAVCA 2024 PE Conference a landmark event, and carry forward the spirit of synergy and collaboration in everything that we do in the year ahead.”
An overview of what’s to come
Next up, audience members were painted a detailed picture of the current and forthcoming political and economic landscape by Daniel Silke, Political Economy Analyst, as we edge ever closer to the highly anticipated 2024 National General National Elections. “As most South Africans know, we have been in an exceptionally tough economic environment for many years now. Just as we exited a global pandemic, we were quickly thrust into a world of geopolitical turmoil and tensions, which has had ripple effects on emerging and developed markets like ours, across the globe.” In his view, the world has rarely been subject to a time of such ‘polycrisis’, with economic disruption and social unrest being observed in multiple global systems and regions.
While addressing some of the global concerns, such as the current trade restrictions, deteriorating US and China trade relations, war conditions in Gaza and the Ukraine, Silke shared some key developments regarding the African continent and market. “While there is a general view that economic prospects across the continent will improve, South Africa specifically is still grappling with a deteriorating unemployment crisis, with 11.7 million unemployed South Africans.” Silke further highlighted how the Sub-Saharan Africa region continues to lag in state support to incentivise private infrastructure investments, which has a detrimental impact on both economies and societies throughout these regions. Moving forward, Silke highlighted some of the potential outcomes of the 2024 South African General elections, and the impact these could have on general economic prospects for the country.
Private credit vs. private equity
As part of the next round of panels, the audience was treated to insight into both private credit and private equity, key differences between the two, and lessons that can be learnt from private equity as private debt approaches maturity. For this discussion, Khurshid Fazel, Partner at Webber Wentzel and moderator for this panel, unpacked where the concept emerged from. “Private credit, also known as private debt, emerged as a key investment strategy post the 2008 financial crisis. This resulted in a significant shift in the lending landscape and resulted in reduced exposure to riskier loans.” Now, years later, private debt has established itself as a distinct asset class.
While both private equity and private credit share key similarities, such as trading only in private, unlisted businesses, as well as both asset classes catering more so to institutional investors, there are a few differences between the two that need to be noted. Private equity firms raise long-term capital from investors, typically from institutional investors like pension funds. Private equity firms will then purchase equity in businesses, resulting in partial or complete ownership. In contrast, private credit investments are direct loans to a company, normally to small and mid-size businesses, but there is no ownership involved.
Building on this conversation was Warren van der Merwe, Managing Partner at Vantage Capital, who unpacked the need to break private credit into senior debt funds and mezzanine debt funds. Mezzanine debt and senior debt are two common types of debt financing that businesses make use of. The key differences between them lie in the priority of repayment and interest rates. A key point of this panel also included exploring whether the private credit had matured as an asset class. Providing commentary on this was Edmund Higenbottam, Managing Director at Verdant Capital, who said “I strongly believe that the market has matured a lot in recent years. However, I am of the belief that there is still much runway ahead. In the past five years, there has been several private credit funds which have been raised with very specific strategies. I think this shows a great growth maturity of the sector”. While a plurality of views were expressed on the panel regarding private credit vs. private equity, the underlying theme, which delegates were reminded of by Kgosi Monametsi, Managing Director of Legacy Africa Capital Partners, was that there is space for both types of funding, depending on the individual needs and objectives for each business.
Harnessing the power of diversity and human capital
The panel discussion on "Harnessing the Power of Diversity and Human Capital" delved into crucial aspects of leadership, shedding light on the multifaceted dimensions of diversity and its profound implications for organisational success. For moderator Brendan Mullen, there are two variables that the need for diverse human capital highlights: individual belonging and social representation. Keeping these variables top of mind provides PE firms with clarity of purpose, because, as Mullen explained, PE is not a “finance industry, but a people industry.”
Panellist Dolores Mashishi opened her discussion on the topic with mention of a Harvard Business Review finding that 30% of leaders in acquired companies leave within one year of being acquired. She believes that a concerted and focused effort towards investing in diverse and transformed leadership teams who share authentic bonds based on principles such as kindness and humanity, are the solution to turning this trend around.
Investing in diversity must, of course, happen at both the level of portfolio companies as well as in fund management leadership teams. As Rory Ord, Head of Private Markets at 27four Investment Managers asserted: “there is great strength to be found in diversity, because it enhances the team’s holistic sense of perspective. When we’ve assembled teams that represent different lenses on the investment world; backed by different but powerful networks, we’ve seen the benefits at every level of the value cycle, from fund-raising and deal sourcing to deal execution.
A glimpse into the LP mindset right now in light of the global macroeconomic climate
This panel discussion provided valuable insights into the perspectives and strategies of institutional investors, particularly in the face of high interest rates, inflation, and a challenging risk environment. Connecting to this broader theme, the panel highlighted the imperative for pension funds to respond to the needs of communities and converge efforts to protect and grow their assets in an increasingly complex economic landscape.
For Kgomotso Ramokala, Principal Officer of the Telkom Retirement Fund, navigating the current “minefield of challenges” will require pension funds to strike the delicate balance between achieving their investment objectives, while supporting and contributing towards the real economy. For Telkom in particular, juggling these imperatives amidst serious liquidity concerns has necessitated a collaborative approach and the forming of strategic partnerships amongst institutional investors, including through the Asset Owners’ Forum.
Solly Matheba, Chairperson of the Tshwane Municipal Provident Fund, emphasised the importance of private markets in addressing societal needs, particularly in underserved rural areas, and highlighted the impact objectives of pension funds in improving the quality of life for members. Echoing these sentiments, Grace Chauke of the Transport Sector Retirement Fund discussed the opportunities for delivering social impact through impactful investments in what she calls “real assets,” such as infrastructure and community development projects, which have a real impact on the livelihoods of people.
Onwards to day two
Day two of the conference is currently under way and will offer more stimulating speaker sessions, knowledge-sharing opportunities, and thought-provoking panel discussions.
About SAVCA
The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa. SAVCA represents more than R214 billion in assets under management through circa 204 members that form part of the private equity and venture capital ecosystem. SAVCA promotes the Southern Africa venture capital and private equity asset classes on a range of matters affecting the industry, providing relevant and insightful research, offering training on private equity and creating meaningful networking opportunities for industry players.