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Current Trends of Private Equity Firms

We thought of presenting the current trends of private equity firms, we hope this might help all the Private Equity Firms around the world.

What is certain, said Cora Fernandez, deputy CEO of SPE and chairperson of SAVCA, is that experienced managers have demonstrated their ability to adapt in a changing and challenging market. "Globally, merger and acquisition activity has slowed and mega deals have evaporated. Investors remain cautious since earnings visibility is a major challenge and debt markets have improved marginally. There is no shortage of debt for good deals, but the amount of debt offered has come down along with gearing levels. We have, in essence, gone back to private equity basics."

She said that private equity players in developed markets were now looking to mid-size companies for investment opportunities, with a hive of activity currently underway in underperforming assets and secondaries.

"The private equity industry in SA is far better placed than its more mature counterparts in the first world. South African private equity deals have never been geared to the same extent as the gearing levels seen in developed markets. As a result, we don't expect to see a high level of underperforming or distressed assets, work outs or turnarounds," said Fernandez.

She said that South Africa's industry may be small by international standards - it makes up only one percent of global activity - but it does contribute a significant 2.8 percent to GDP which contributes to expansion and development in the country. "It is sophisticated and well-organised with a well established network of highly experienced players, deep and liquid debt markets and solid legal framework.

"Currently, the biggest challenge facing us in the aftermath of the financial crisis is fundraising. Locally, investors into PE funds are largely pension funds and endowments, many of which are currently reviewing their asset allocation strategies in search of greater liquidity. More than 50 percent of capital raised by PE funds in the past two years was sourced offshore, principally the US and European countries. The full extent and consequences of this risk is only likely to be felt in the next 12 to 18 months."

Fernandez said that, despite these challenges, private equity remains a great source of foreign direct investment and of growth and expansion finance. "This is very good news for the financial services sector and the economy. It essentially means that we can use foreign capital to finance and stimulate growth in SA."

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