Old Mutual Investment Group has launched a new private equity fund targeted at high net worth individuals and institutions. According to the group, the fund gives investors access to a selection of South Africa’s leading private equity managers.
The fund invests in five underlying private equity managers, which include Actis, Ethos and Capitalworks, as well as two of Old Mutual’s direct funds. Managers are selected based on their proven track records and investors gain exposure to over 40 companies.
According to Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association (SAVCA), this latest fund launch by Old Mutual Private Equity is confirmation that the South African private equity industry is adaptive and alert to investors’ needs.
When can you access your money?
Private equity is generally suited to the long term investor. You have to be prepared invest in such funds for around ten years. But Old Mutual’s new private equity fund does offer investors the option to access their investment at any time.
However, Jacci Myburgh, head of Old Mutual Private Equity, cautioned that there is an exit fee (of 7, 5% on the amount you wish to withdraw) and advises investors to consider this asset class as a long-term hold.
“Private equity involves investing capital into companies that are not listed o¬n a public stock exchange. Simply put, businesses are bought, held for a reasonably long time (typically five to seven years) and then sold again. The objective during this period is almost exclusively to enhance the value of the business,” said Myburgh.
She added that the inclusion of private equity in a portfolio is also an excellent diversifier. Local and international experience has shown that private equity has a low correlation to the listed equity market. This should then add equity-like returns to a portfolio, but at lower volatility than the listed equity markets.
“Reasons for these lower levels of volatility include a preference for businesses with defensive and predictable cash flows, limitations o¬n overly aggressive expansion strategies by management (given the already higher leverage) and a strong focus o¬n delivering to the shareholder. In addition, with the 2011 changes to Regulation 28-governed products, pension funds are now placing more of their assets in private equity,” said Myburgh.
Is private equity the right investment for you?
If you have a lump sum to invest, private equity could be the right investment for you. However, you should be prepared to invest a minimum of R100 000 into this fund.
Justin Anderson, executive consultant at the Hereford Group, said you should keep in mind that private equity is an aggressive type of investment.
“This investment would be more suited for a seasoned investor who wants versatility in their portfolio. For the average South African a balanced funds investment would be a safer option,” said Anderson.
Clarence Botha, consulting actuary at Aon South Africa, said that because private equity is a high growth investment, people who will need income from their investments on a short term basis should steer clear of it.
“This investment would suit high networth individuals who have paid off their homes and other bigger assets,” said Botha.