DOCSLIB.ORG

The Impact of Pension Fund Investments on Economic Development in South Africa

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Impact of Pension Fund Investments on Economic Development in South Africa THE IMPACT OF PENSION FUND INVESTMENTS ON ECONOMIC DEVELOPMENT IN SOUTH AFRICA Student: Ayodeji Olaifa Student Number: 209919108 Supervisors: Mr Bob Wood, Mr Idriss Mouchili and Professor Richard Haines Research submitted in fulfilment of the requirements for the degree MA Research Programme in Development Studies In the Department of Development Studies, Faculty of Business and Economic Sciences of the Nelson Mandela Metropolitan University APRIL 2012 1 DECLARATION I, Ayodeji Haruna Olaifa, 209919108, hereby declare that the dissertation for MA Research Programme in Development Studies is my own work and that it has not previously been submitted for assessment or completion of any postgraduate qualification to another University or for another qualification. Ayodeji Haruna Olaifa Official use: In accordance with Rule G4.6.3 4.6.3 A treatise/dissertation/thesis must be accompanied by a written declaration on the part of the candidate to the effect that it is his/her own work and that it has not previously been submitted for assessment to another University or for another qualification. However, material from publications by the candidate may be embodied in a treatise/dissertation/thesis. 2 ACKNOWLEDGEMENTS I would like to thank the following people and institutions, for their contributions to the successful completion of my dissertation: My parents, for their ongoing prayers, encouragement and care. My darling wife, Yetunde, for her love, support and confidence in me always. My daughter, Oluwafikunayomi, who ensured that I stayed up all night , with little or no choice but to continue working on my dissertation, and in a bid to „escape‟ her loving attention, had to flee to work at dawn everyday to have early starts on my study before work commences. Thank you darling, daddy loves you to bits! My supervisors, Bob and Idriss, for their dedication, positive criticisms and support throughout the course of this research exercise. My Faculty friends and coaches, Berny, Amanda and Prof Haines, thank you for your guidance and for putting up with my impatience. Allan Gray Ltd, for their financial support and role in the completion of this work. And above all, to God Almighty, for life and all its blessings, grace and ability to continue to work towards being that which He wants me to be. 3 TABLE OF CONTENTS Chapter One Introduction to the Research 6 Chapter Two Research Methods and Methodology 21 Chapter Three Literature Review 29 Chapter Four Nature and Development of Pension Funds in South Africa: Structure, Design, Governance, Investments and Taxation 47 Chapter Five Development of Alternative Investments (AI), and Increasing Labour Interest in Social Investments 78 Chapter Six Pension Fund Investments 99 Chapter Seven National Social Security Fund (NSSF) 132 Chapter Eight Conclusion 166 Bibliography 175 Appendix 192 4 ABSTRACT Pension fund investments have been under the spotlight lately, particularly on the back of the recent global financial and economic crisis that resulted in a significant reduction in pension fund assets across economies. Increased poverty levels and high financial indebtedness abound, as workers grapple with retrenchments, reduction in retirement benefits and reduced wages. This is causing a re-assessment of investment strategies of pension funds across the globe, and increasing support for the argument that, the traditional equity/government bond asset allocation is out - fashioned in a world of lower returns and wider choices. Pension funds by virtue of their size, can impact the society directly and/or indirectly through investments in companies that incorporate environmental, social and governance issues in their corporate behaviours, or in dedicated socially responsible investment funds or other forms of alternative investments. This study sought to provide a link between the investment patterns of pension funds and national economic development. An in-depth literature review was undertaken, and investments impacts were assessed by looking at published reports of select funds and corporations. Pension funds are an integral part of a nation‟s economy. This research work established the various dimensions in which pension fund investments can impact the socio economic development of a country, especially in developing countries, where there exists a huge infrastructural and economic gap among different sectors of the economy. Pension funds are workers capital, and therefore should be invested in a manner that will benefit workers, and these benefits cannot be restricted to mere financial benefits, it should be able to generate social, financial and environmental benefits, and in a sustainable way. 5 Chapter One Introduction to the Research 1.1 Introduction and background to the study South Africa‟s Pension system is mainly based on a private pension fund system comprising over 13,000 pension funds, and about 13 million members as at the end of 2008 (FSB 2007). Pension fund sizes generally depend both on the accumulated pension contributions and on the growth generated by the pension fund‟s investments. The total assets of South Africa pension fund industry is estimated to be over R1.2 trillion and a large majority of these funds are being managed by the Public Investment Corporation (PIC) 1on behalf of the Government Employee‟s Pension Fund (GEPF). The industry is presently dominated by the private sector which arguably has a paramount business agenda which leads organised labour to argue that, ideally pension fund contributors should be the most important role players in the industry but currently they have the least influence. A significant portion of the country‟s pension fund assets2 are invested in shares and in insurance policies. The recent economic crisis and consequently the rising unemployment and job loss have increased public interest in the investment of pension fund assets. With inflation of around 9% in 2008 and average performance of -12%, real loss of most pension funds within this period amounts to 21% (Sanlam 2009). As developing economies strive to cope with the aftermath of the recent economic crisis and its attendant liquidity crisis, it has become topical that pension fund capital be designed to meet gaps in markets for small and 1 The PIC manages over R700billion representing assets of about 1.5million state workers (GEPF 2010). 2 According to the 2006 FSB Annual Report, over 60% of South Africa pension fund assets are invested in equities and insurance policies. 6 medium sized firms in the economy, therefore effectively acting as venture capital funds. Institutional investments in the last 50 years have been dominated by investments in the so called, traditional investment vehicles: equities, real estate, government bonds (cash). Recent years have seen a dramatic explosion of interest in alternatives from these investment vehicles, with private equity, investment grade and high yield credits, emerging markets equities and debts, hedge funds, commodities and socially responsible investments increasingly seen as useful and in many cases essential components of a balanced investment portfolio. In developing economies like South Africa, these alternative investments3 have gained a lot of attention as pension funds evolve towards being agents of economic development over and above their fiduciary responsibilities. It is recognised that pension fund investments can have impacts beyond the rate of return. Historically, investments policies and fiduciary responsibilities were narrowly constructed so that the secondary or developmental impacts of investments were not deemed relevant. However, some stakeholders have come to recognise that collateral benefits from socially responsible investments are important elements of a prudent investment of pension funds. Even though a few pension funds (like some other institutional investors) are already involved in some form of domestic development, particularly in infrastructure which can offer regular long term cash flows, large scale social investments are still to be achieved. The GEPF4 led other South African investors in launching an investor led network as part of their commitment to the UN-backed Principles for 3 Alternative investments have been preferably referred to as development funds in South Africa 4 This is the 29th largest sovereign fund in the world with $74billion in assets, according to a research by P&I/Watson Wyatt (2009). 7 Responsible Investing5. The PIC makes significant investments in rural and township development as well as in national infrastructure development. It invested R2.5billion in 26 Retail developments and R19billion in refurbishing key airports in the country (Fred Hendricks 2008). 1.2 Economic Environment The recent 2011 economic crisis in the euro zone and the re-emergence of financial risk in the world has sent further shocks to the world markets. Not too long ago, the global economy in 2007/2008 was plagued with a severe economic recession catalysed by a massive and sporadic financial crisis that had its roots from the Wall Street in the United States of America. Many referred to it as the most severe and most synchronised since post war period, as virtually all the developed economies and many emerging markets and developing economies were thrown into deep economic recession (Charles and Robert Aliber, 2008). Overall global GDP was estimated to have contracted by 6.5% (annualised) in the fourth quarter of 2008 from a 4% growth in 20076. This incessant global financial crisis has impacted greatly on
Load more

Recommended publications
  • Copyright Notice
    COPYRIGHT NOTICE Please note: The material contained in this document can be used ONLY forpersonal study/research and therefore can be copied but only forpersonal use. Any form of copying for distribution purposes requires copyright permission from author/university. UNIVERSITY OF NATAL AN EXPLORATORY STUDY TO DETERMINE IF THE VENTURE CAPITAL SCHEMES FRAMEWORK CAN BE INTRODUCED TO SOUTH AFRICA RAJENDRAN GOVENDER University of Natal Graduate School of Business Master of Business Administration Supervisor Pro£ Abhijit Bhattacharya Topic An exploratory study to determine if the Venture Capital Schemes Framework can be introduced to South Africa Student Rajendran Govender Student No. 201 506209 Date 15 September 2003 DECLARAnON "1, Rajendran Govender, hereby declare that: • the work in this report is my own original work, • all sources used or referred to have been documented and recognised, • this report has not been previously submitted in full or partial fulfilment of the requirements for an equivalent, or higher qualification at any other educational institution. " . ... -----------------------------~ ~ . 096662 Rajendran Govender September 2003 • f..:.; ' II ACKNOWLEDGEMENTS I would like to thank my supervisor, Professor Abhijit Bhattacharya for his assistance, time and guidance in completing this dissertation. I would also like to thank Mr. Raj Sewnarain and Mr. Jay Soma of Business Partners Limited (East Fund - Durban), for taking time out oftheir busy schedules and assisting with the discussion / interview component of the research design. ill ABSTRACT The South African government has indicated that the National Small Business Act of 1996 had failed to get the small business sector working successfully as engine for growth. Thus, government policy measures, using an institutional network alone, to create a thriving SME economy, has not succeeded.
    [Show full text]
  • 1 Turning up the Heat: How Venture Capital Can Help Fuel The
    1 Turning up the Heat: How Venture Capital Can Help Fuel the Economic Transformation of the Great Lakes Region Appendices 2 Appendix A Key Venture Capital Words, Phrases and Concepts1 Venture capital refers to cash invested by professional investors in new companies with prospects for rapid growth, substantial size, and attractive profitability. The definitions of pre-seed, seed, and early stage venture investing refer to the earliest stages of professional investing, often when the company does not yet have all of the components of a fully functioning enterprise, namely: management, developed products, and sales. Pre-seed investments usually take place before a company is formed and finance the early stages of technology development and company formation. These stages are succeeded by seed and early stage investing, when some elements of company operations are in place, but where management teams, products, and markets are not fully tested against the competition. Generally speaking, all three investment phases occur pre-revenue or before meaningful revenue is earned. Investors in start-up companies include the business founders, their friends and families, angels, and professional venture capitalists. Investing in these businesses generally starts with the founders and proceeds through friends and family members who personally know the founders; investors may also include angel investors who may not have personal acquaintance with the founders, and/or professional venture capitalists who are investing in the business without any necessary prior involvement with any of the company’s other investors. Historically, angel investors were high net-worth individuals who provided investment cash without becoming involved in management of the enterprise.
    [Show full text]
  • Restructuring of the Rembrandt Group Circular to Shareholders and Notices of Annual General Meetings 30 August 2000
    Rembrandt Group Limited Rembrandt Controlling Investments Limited Technical Investment Corporation Limited Technical and Industrial Investments Limited Restructuring of the Rembrandt Group Circular to shareholders and notices of annual general meetings 30 August 2000 Attorneys Joint sponsoring brokers Deutsche Bank Securities Deutsche Bank Securities (SA) (Pty) Ltd Hofmeyr Herbstein & Gihwala Inc. (Registration number 1995/011798/07) Reporting accountants PricewaterhouseCoopers Inc. Chartered Accountants (SA) Registered Accountants and Auditors (Registration no 1998/012055/21) Indien u ’n Afrikaanse vertaling van hierdie dokument wil hê, skakel asseblief 0800 996 164 If you have any questions regarding the restructuring of the Rembrandt Group, call the Information Agents on 0800 996 164 (or + 44 20 7335 7278 if you are phoning from outside South Africa) are acting as Information Agents to answer your questions about the restructuring. Corporate information Directors of Rembrandt Group Limited (Registration number 1948/031037/06) Johann Rupert (Chairman) P J Erasmus* E de la H Hertzog (Co-Deputy Chairman) D M Falck M H Visser (Co-Deputy Chairman and Managing Director) J Malherbe P E Beyers E Molobi* W E Bührmann J A Preller G D de Jager* P G Steyn* J W Dreyer T van Wyk * non-executive Directors of Rembrandt Controlling Investments Limited (Registration number 1952/000002/06) Johann Rupert (Chairman) D M Falck E de la H Hertzog (Co-Deputy Chairman) J Malherbe M H Visser (Co-Deputy Chairman and Managing Director) E Molobi* P E Beyers J A
    [Show full text]
  • 3I Infrastructure Plc Completes the Sale of Its Stake in Cross London Trains and the Acquisition of Tampnet
    3i Infrastructure plc completes the sale of its stake in Cross London Trains and the acquisition of Tampnet 14 MARCH 2019 3i Infrastructure plc (“3i Infrastructure”) yesterday completed the sale of its 33.3% stake in Cross London Trains (“XLT”) following the satisfaction of certain conditions. The sale, to a consortium of Dalmore and Equitix funds, was announced on 5 February 2019 with proceeds to 3i Infrastructure of £333 million. XLT was established to procure and lease the rolling stock for use on the Thameslink passenger rail franchise. 3i Infrastructure today completed the acquisition of Tampnet following the receipt of regulatory approvals in Europe and the USA. 3i Infrastructure has invested €226 million alongside Danish pension fund ATP, with each party acquiring 50%. 3i Infrastructure’s investment manager, 3i Investments plc, will manage the investment on behalf of the consortium. Tampnet is the leading offshore telecoms network operator in the North Sea and the Gulf of Mexico. The transaction was announced on 27 July 2018. -Ends- For further information, contact: Thomas Fodor Investor enquiries +44 20 7975 3469 Kathryn van der Kroft Media enquiries +44 20 7975 3021 Notes to editors: About 3i Infrastructure plc 3i Infrastructure plc is a Jersey-incorporated, closed-ended investment company, an approved UK Investment Trust (with effect from 15 October 2018), listed on the London Stock Exchange and regulated by the Jersey Financial Services Commission. It is a long- term investor in infrastructure businesses and assets. Its market focus is on economic infrastructure and greenfield projects in developed economies, principally in Europe, investing in operating businesses and projects which generate long-term yield and capital growth.
    [Show full text]
  • PIC INSURES the 3I GROUP PENSION PLAN
    PIC INSURES THE 3i GROUP PENSION PLAN London, 26 May 2017 – Pension Insurance Corporation plc (“PIC”), a specialist insurer of defined benefit pension funds, has concluded a pension insurance buy-in with the Trustees of the 3i Group Pension Plan (“the Plan”), for a premium of approximately £200 million. The buy-in covers around 40% of the Plan’s liabilities for pensions in payment. The Trustees were advised by LCP and Linklaters. 3i is a leading international investment manager focused on mid-market Private Equity and Infrastructure. Their core investment markets are northern Europe and North America. Carol Woodley, Chairman of Trustees, said: “The Plan has been de-risking for a number of years, primarily by moving our asset mix to favour index-linked gilts. We are very pleased to have been able to complete this logical next step in our long-term de-risking programme. PIC demonstrated significant expertise while helping us to manage a complex project and ultimately deliver the transaction we required.” Uzma Nazir, Head of Origination Structuring at PIC, said: “The Plan’s Trustees and the company have a well-developed de-risking strategy in place. As part of this strategy, the Trustees have been increasing the proportion of the Plan’s assets invested in bonds over time. This strategy has proved to be the right one and the Trustees have now been able to de-risk a significant proportion of the liabilities. We are delighted to have been able to help them achieve this goal.” Michelle Wright, Partner at LCP and lead adviser on the transaction, said “The buy-in is an important step in the Plan’s de-risking journey, reducing the Plan’s exposure to longevity risk and providing perfect hedging of the Plan’s complex pension increases for around 40% of the Plan’s liabilities for pensions in payment.
    [Show full text]
  • Are Institutional Investors the Answer for Long-Term Development Financing?
    Development Co-operation Report 2014 Mobilising Resources for Sustainable Development © OECD 2014 PART I Chapter 6 Are institutional investors the answer for long-term development financing? by Raffaele Della Croce, Directorate for Financial and Enterprise Affairs,1 OECD Developing countries need long-term investors to help finance activities that support sustainable growth such as infrastructure, including low-carbon infrastructure. With USD 83.2 trillion in assets in 2012 in OECD countries alone, institutional investors – pension funds, insurers and sovereign wealth funds – represent a potentially major source of long-term financing for developing countries. Despite the recent financial crisis, the prospect for future growth for institutional investors is unabated, especially in developing countries. But although interest is growing, the overall level of institutional investment in infrastructure remains modest and major barriers to investment still exist. Greater growth will depend on policy and structural reforms to create a more favourable investment climate, build private sector confidence and ensure that global savings are channelled into productive and sustainable investments. This chapter also includes an opinion piece on long-term investment by Sony Kapoor, Managing Director of Re-Define, on promoting long-term investment in developing country infrastructure. 79 I.6. ARE INSTITUTIONAL INVESTORS THE ANSWER FOR LONG-TERM DEVELOPMENT FINANCING? Long-term finance plays a pivotal role in fulfilling physical investment needs across all sectors of the economy (OECD, 2013c). It is also essential for the development of small and medium-sized enterprises, especially young, innovative, high-growth firms. Addressing the challenge of climate change and other pressures on the environment will require long-term investments in renewable energy and low-carbon technologies (G20/OECD, 2013).
    [Show full text]
  • Sovereign Wealth Funds As Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison
    sustainability Article Sovereign Wealth Funds as Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison Stefan Wurster * and Steffen Johannes Schlosser TUM School of Governance, Technical University Munich, 80333 Munich, Germany * Correspondence: [email protected] Abstract: Sovereign wealth funds (SWFs) are state-owned investment vehicles intended to pursue national objectives. Their nature as long-term investors combined with their political mandate could make SWFs an instrument suited to promote sustainability. As an essential precondition, it is important for SWFs to commit to sustainability criteria as part of an overarching strategy. In the article, we present the sustainability disclosure index (SDI), an original new dataset for a selection of over 50 SWFs to investigate whether SWFs disclose sustainability criteria covering environmental, social, economic, and governance aspects into their mandate. In addition to an empirical measurement of the disclosure rate, we conduct multiple regressions to analyze what factors help to explain the variance between SWFs. We see that a majority of SWFs disclose at least some of the sustainability criteria. However, until today, only a small minority address a broad selection as a possible basis for a comprehensive sustainability strategy. While a high-state capacity and a young population in a country as well as a commitment to the international Santiago Principles are positively associated with a higher disclosure rate, we find no evidence for strong effects of the economic development level, the resource abundance, and the degree of democratization of a country or of the specific size and structure of a fund. Identifying favorable conditions for a higher commitment of SWFs could Citation: Wurster, S.; Schlosser, S.J.
    [Show full text]
  • 1199SEIU Health Care Employees Pension Fund
    1199SEIU Health Care Employees Pension Fund SUMMARY PLAN DESCRIPTION OF YOUR PENSION BENEFITS HOME | TABLE OF CONTENTS | HOME | TABLE OF CONTENTS | July 2016 Dear Pension Fund Participants and Retirees: This updated booklet contains a Summary Plan Description (“SPD”) of your Pension Plan as well as a copy of the Plan Document for the 1199SEIU Health Care Employees Pension Fund (the “Plan” or “Pension Fund”). It can help you plan and prepare for Retirement. If you have any questions about the Pension Plan and how it affects you, feel free to make an appointment with a Pension Fund Counselor. When you do, it’s important to make your appointment at least three to six months before you plan to Retire. Your Pension Fund Counselor will explain your pension benefits and options, and help you through the application process. This SPD is a non-technical explanation of your pension benefits. It is written to make it easier for you to understand your rights and responsibilities under the Plan Document and related Trust Agreement. However, it may not provide you with all of the details of the Plan’s rules and regulations, nor does it modify, change or otherwise interpret the terms of the Plan Document. Any words that have an initial capital letter are defined terms and appear in Section XII under the heading “Key Terms and Definitions.” Telephone conversations and other oral statements can easily be misunderstood. Therefore, you should rely on the information provided in the SPD and Plan Document rather than any oral explanation of the Plan’s provisions.
    [Show full text]
  • Report on the Contribution of Pension Funds to the Capital Markets of the EEC
    COMMISSION OF THE EUROPEAN COMMUNITIES Report on the contribution of pension funds to the capital markets of the EEC ECONOMIE AND FINANCIAL AFFAIRS SERIES - 1968 - 7 I Report on the Contribution of Pension Funds to the Capital Markets of the EEC STUDIES ECONOMIC AND FINANCIAL AFFAIRS SERIES No. 1 BRUSSELS 1969 TABLE OF CONTENTS Page INTRODUCTION 7 CHAPTER I Some conceptual considerations 9 1. Current transfers 9 2. Funding (capitalization) 10 3. Effects on capital markets 11 CHAPTER II Pension funds and their assets - The present status 15 1. United Kingdom 15 2. United States 16 3. Holland 17 4. Germany 18 5. Italy 20 6. Belgium 21 7. France 22 CHAPTER III Scope for growth of pension funds 24 1. Statistics and estimates 24 2. Scope of analysis 24 3. Basic assumptions 24 4. Conceptual framework 25 5. Projections of membership 26 6. Projections of benefits 27 7. Projections of fund assets 27 8. Main conclusions and implications 32 CHAPTER IV Possible reforms to foster the security and growth of pension funds and their contribution to capital markets 37 1. On pension funds in the form of balance-sheet provisions (Germany and Italy) 37 2. On the legal form of pension funds 39 3 Page 3. On countries with a repartition system in force 39 4. On the tax position of pension funds 40 5. On the regulation of pension funds 42 APPENDICES TO CHAPTER III 45 List of tables in the text Table 1 - Trends in private non-agricultural employment 28 Table 2 - Projections of membership penetration 28 Table 3 - Covered workers by country and main type of fund
    [Show full text]
  • Pension Fund Investment in Infrastructure: a Resource Paper
    - Occasional Paper Series - No.3 December, 2008 Pension Fund Investment in Infrastructure: A Resource Paper By Larry W. Beeferman Pensions and Capital Stewardship Project Labor and Worklife Program Harvard Law School Contents Abstract............................................................................ 1 Introduction...................................................................... 2 Section 1: Risk, Reward, and Other Financial Considerations A. Infrastructure: defi nitions………….…………….…... 5 B. Why infrastructure investments may be attractive to pension funds.................................... 7 C. The fi nancial rewards and risks of investments in individual infrastructure facilities…………….. 8 D. Where infrastructure investments fi t in the fund portfolio…................................................. 15 E. Types of investment vehicles……………….............. 18 F. Financial performance…………………………………. 23 G. Fees and other charges………………………………. 29 Section 2: Labor Implications and Responses A. Potential impacts………..……………………………... 32 B. Contractual and legislative responses…………….. 35 C. Pension fund responses.…..……………………….... 40 Conclusions…………………………………….................. 50 Endnotes…..…………………………………….................. 56 Occasional Papers | December 2008 Pension Fund Investment in Infrastructure: A Resource Paper By Larry W. Beeferman* Abstract What is termed “infrastructure” appears to offer pension funds opportunities for investment that might yield substantial and predictable returns matching their long-term liabilities. But there
    [Show full text]
  • SAVCA KPMG Private Equity Survey 2004
    SAVCA Southern African Venture Capital and KPMG AND SAVCA Private Equity and Venture Capital Survey – 2003 KPMG CORPORATE FINANCE The GIBS & SAVCA Foundation Programme for Venture Capital and Private Equity. Consider it your first major investment. The Gordon Institute of Business Science, together with the Southern African Venture Capital and Private Equity Association, have partnered to create The Foundation Programme, a three day course from 1-3 June 2004. This programme will provide a strategic overview of the Venture Capital and Private Equity industry and processes, as well as a working knowledge of key analytical tools used by practitioners and insights into practical challenges and strategic opportunities in the industry. The 3-year partnership between GIBS and SAVCA will include the hosting of: G An annual 3-day Foundation Programme G An annual 1-day Advanced Programme G A number of GIBS Forum events highlighting topical industry issues which have an impact on practitioners. For more information on these programmes visit www.gibs.co.za/savca or to reserve your seat contact Maritsa Botha on 011 771 4317, or email at [email protected]. But don’t wait too long. An investment this profitable doesn’t come around every day SAVCA sponsors KPMG and SAVCA Private Equity and Venture Capital Survey – 2003 KPMG and SAVCA 1 Contents Highlights 3 Glossary 4 Foreword 5 Sources Of Information 6 Introduction to Private Equity 7 Funds Under Management 9 Fund Raising Activity 13 Investment Activity 16 Exits 21 Performance 23 Black Economic Empowerment
    [Show full text]
  • K P M G a N D S a V C a Private Equity and Venture Capital Survey – 2002
    KPMG AND SAVCA Private Equity and Venture Capital Survey – 2002 KPMG CORPORATE FINANCE SAVCA – WBS Foundation Programme for Practitioners In Venture Capital and Private Equity VCPE 7-9 May 2003 University of the Witwatersrand 2 St David’s Place, PARKTOWN, Johannesburg 2193 Programme Booking and Administration: Anne Badcock Tel: (011) 717-3573 Fax (011) 643-2336 e-mail: [email protected] WBS Website: www.wits.ac.za/wbs KPMG and SAVCA Private Equity and Venture Capital Survey – 2002 Highlights I South Africa’s private equity industry boasts R40,6 billion in funds under management I R8,7 billion in undrawn commitments available for future investments I Investment spending by private equity firms up 63% from 2001 to R3,9 billion in 2002 I Fourth consecutive year of decreased fund raising with R800 million in new commitments raised during 2002 Private Equity and Venture Capital Survey – 2002 3 Contents Glossary 4 Foreword 5 Sources of information 6 Introduction to private equity 7 Funds under management and commitments 9 Investments 17 Exits 21 Performance 22 Black Economic Empowerment 24 References and footnotes 26 Glossary IRR – Internal Rate of Return. BEE – Black Economic Empowerment. BVCA – British Venture Capital Association. EVCA – European Private Equity & Venture Capital Association. Follow on investments – Investments into companies where first round funding has already been made. Gross IRR – IRR before the deduction of management fees and carried interest. Gross realised IRR – Gross IRR on the total realised portfolio of investments. Draw down – A draw down or capital call occurs when third party investors (called limited partners in the US) provide cash to a private equity fund for investment into a portfolio company.
    [Show full text]