Some General Private Equity Questions:
A private equity investor refers to someone who invests in privately held companies.
The main difference is that while private equity investors prefer stable companies, venture capital investors usually come in during the startup phase.
Compared to standard investments in publicly traded funds, private equity stands out in the following ways:
– Longer investment timeline
– More direct control over the asset
– Heightened risk / reward structure
Private equity investments often require substantial capital. This means private equity investors are usually high-net-worth individuals, financial institutions, pension funds, and other organisations with extensive resources. These organisations also pool the resources of high net-worth individuals to attract deals that would otherwise be unfeasible as individuals.
A recent article from Ventureburn shed some light on who has private equity investments in South Africa. The article referenced a survey on venture capital showing that most of the R1,23 billion invested in local startups during 2019 came from investors based in Cape Town. Additionally, the data shows the public sector holds a large position of active portfolios in South Africa (a total of 28,1 percent of portfolios, with deals valued at R1,75 billion).
Investors opt for private equity to diversify their holdings and aim for higher returns than what the public market might provide.
Private equity is a mutually remunerative alternative asset class, independently managed to the benefit of all its stakeholders.
Start working with a private equity firm that can help guide your investment diversification strategy. When you are ready to invest in private equity, reach out to IFSA. Some things are still best discussed offline.
Private equity investments are recommended as part of a diversified portfolio – as their returns are potentially much higher and not affected by stock market dynamics. It’s a popular, trusted investment option.
With 174 firms in South Africa, you may feel overwhelmed in reviewing and identifying your best fit.
The first step in selecting a private equity firm is to carefully evaluate your current holdings, your interest in private equity, and what you hope to accomplish. In most cases, every investment choice centres around the following objectives:
Risk: The potential for your investment not to realise its anticipated gains through a future sale.
Volatility: The day-to-day and year-to-year changes in the value of the investment.
Return: The compared rate of return with alternative investment options. Are the firm’s investments your best bet?
Liquidity: How fast can you sell your position if necessary (as mentioned above, private equity is a highly illiquid investment category).
Taxes: Finding investments with varying timelines for tax events to reduce your overall tax liability.
No private equity investment will equally cater to all five objectives. The challenge becomes prioritising these goals for yourself in line with your current investments and financial needs. Informed by prior experience with investors, IFSA chooses to build its funds with assets centred on low volatility and reasonable returns.
We do this by avoiding investments in risky startups. Instead, we carefully monitor the market for more established SMMEs that are beyond their initial growth phase. Our record shows that businesses in this position with strong leadership and positive results are ready for that next infusion of capital.
Private equity firms make money in two ways – fees and carried interest.
They do so by selling their ownership interest in various SMMEs for a higher price than they paid for them. After the private equity firm receives its cut, the investors receive a share of the profits in accordance with the terms of their agreement. Most private equity investment agreements have a preferred return provision known as a waterfall.
Partnering with a private equity firm is a great way to acquire capital needed for further growth and rapid market expansion. Investors opt for private equity to diversify their holdings and aim for higher returns than what the public market might provide.
The demand for private equity in South Africa and other African countries continues to increase. According to the global law firm White & Case, private equity in Africa saw record-breaking numbers in 2019 at the peak of an upward trend. Most of those investments were in companies focused on infrastructure (for example, utilities, transportation, healthcare, agribusiness and fintech). Combined, Nigeria, South Africa, Egypt and Kenya received 85 percent of private equity funding in the African region (equating to $1.7 billion).
The Africa Report also published some data on the 2021 private equity landscape in Africa. That research showed a total of 600 firms are tied to investments on the continent. Of those 600, South Africa is home to 174 firm headquarters and regional offices. Regarding the amount of desired investment, the bulk of surveyed investors have shown a preference for deals in the ranges of $1 to 5 million, $5 to 10 million, and $10 to 25 million.
Private markets are going mainstream. Private equity’s net asset value has grown more than sevenfold since 2002 – twice as fast as global public equities.
Some General Fund Questions:
Trust starts with a name. The Cornerstone Capital Fund is a living metaphor for the keen similarities between construction, architecture, and investing. When the brand was being developed, we looked for a name that would be able to tell the story of the fund in the simple terms of a metaphor.
Designing a building from the ground up is surprisingly similar to building a business. In every instance, the structure’s foundation is the most important part of the building’s success. And the key component to ensuring a solid foundation is what is known as the ‘cornerstone’.
During the industrial revolution, cornerstones were seen as the first, immovable object around which a building took its direction and orientation. The same can be said of the business we conduct at IFSA – our fund provides an unshakable core upon which the success of a business is built.
The Capital Cornerstone Private Equity and its International counterpart, brings something new to the investment space where the potential upside far outweighs the potential upside of any traditional asset class.
The Cornerstone Capital Private Equity Fund focuses on unlisted companies in South Africa with the option to access opportunities in the rest of Africa. The Cornerstone Capital International Fund is unique – it received the highest equity allocation ever authorised in a Mauritius-based fund.
Similar to the private equity fund, Cornerstone Capital International is designed to yield stable returns over 7 – 10 years, moving steadily with low market volatility. The fund focuses on global opportunities, investing in offshore entrepreneurial businesses.
Together, both fund segments provide a combined resource for various entities and institutions to realise their best potential.
We seek to create value for three distinct groups – investors, independent financial advisors (IFAs), and privately owned and operated businesses (SMMEs).
We believe these groups of individuals are uniquely positioned and hold a symbiotic relationship. At IFSA, we work to facilitate and cement a relationship between the three groups:
Investors need a safe place to grow their money;
IFAs need an investment manager they can trust;
SMMEs need capital and other resources to grow and scale their business.
There is always a risk in private equity. No reward will surface without it. But that’s where the skill, experience and resources of a competent fund manager can make the difference. However, even if you planned for every conceivable source of apprehension, could you have planned for COVID-19?
If we invested in companies in the hospitality industry, any potential upside could easily get lost in a downward spiral of negative growth.
The Cornerstone Capital Private Equity Fund focuses on investing in businesses that demonstrate superior historical performance. The fund has two distinct counterparts – local, and international.
The local fund is based in South Africa under Licence of the FSCA. It primarily invests in South African opportunities. In addition, the specific investment mandate also provides the option to expand into Africa. The typical investment horizon is 7 – 10 years, and returns are measured in ZAR.
Conversely, Cornerstone Capital International is an offshore fund that invests in global opportunities. Based in Mauritius, the fund operates under Licence of the FSC of Mauritius. Your typical investment horizon for the international fund is also 7 – 10 years, and returns are measured in USD.
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