The Private Equity Industry: A Tale of Power, Greed, and Cronyism
A staggering 59% of private equity funds were raised from investors outside of South Africa, according to the 2024 Private Equity Industry Survey by the Southern African Venture Capital Association (SAVCA). This is a damning indictment of the industry’s priorities, where profits are placed above the well-being of the people and the country.
The survey reveals that private equity firms are more optimistic about an increase in exit activity in the next six months, but this is likely driven by a desire to cash in on their investments rather than any genuine commitment to creating value for stakeholders. The report notes that deal activity by private equity firms has remained stagnant, with only a slight increase of R0.5 billion in 2023 compared to the previous year. This lack of investment activity can be attributed to the tougher economic conditions, but it’s also a reflection of the industry’s inability to drive growth and create jobs.
The report also highlights the growing importance of environmental, social, and governance (ESG) considerations in private equity investments. While this is a positive development, it’s clear that the industry is only paying lip service to these concerns, as they are driven by a desire to increase returns rather than any genuine commitment to sustainability and social responsibility.
The survey also reveals that private equity firms are more focused on ESG reporting and measurement than actual ESG performance. This is a troubling trend, as it suggests that the industry is more concerned with appearing green than actually being green. The report notes that 92% of respondents require measurement of portfolio company performance against specific ESG metrics, but this is unlikely to lead to meaningful change or improvement.
The industry’s commitment to black economic empowerment (BEE) is also called into question, with many firms claiming to be promoting diversity and inclusion while actually doing little to address the underlying structural issues. The report notes that investee companies have reported significant improvements in BEE score-card components, but this is likely driven by tokenistic measures rather than genuine efforts to address inequality and discrimination.
In conclusion, the private equity industry is characterized by power, greed, and cronyism. While there are some positive trends emerging, such as the growing importance of ESG considerations, these are unlikely to lead to meaningful change or improvement. The industry’s priorities remain skewed, with profits placed above people and the country. It’s time for the private equity industry to be held accountable for its actions and to prioritize the well-being of South Africa and its people.
