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| SEGMENTAL
REVIEW |
| PRIVATE
EQUITY |
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| Performance
for the year |
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2006 |
2005 |
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US$m |
US$m |
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| Revenue and other income |
56,9 |
52,6 |
| Profit from operations |
39,1 |
38,8 |
| Closing capital employed |
109,4 |
82,2 |
| Return on equity before |
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| taxation (%) |
40,8 |
47,2 |
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| Profit from operations |
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| Overview of
Brait Private Equity |
| The Private Equity business of Brait comprises: |
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The management of third-party capital committed
by a set of international and South African investors,
including Brait and the team, to its private equity funds; |
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The management of Brait capital committed through the
Proprietary Investing Programme in terms of which investments
are made in transactions completed by its Private Equity
division which fall outside the investment mandate of
the private equity funds; and |
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The deployment of such capital by making medium to long-term
investments into corporate South Africa across the various
industries in our economy. |
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| Brait's fund format allows it to leverage its
own skills alongside the capital of a premier set of international
and South African investors or limited partners. The earnings
stream from these operations are of a high quality, comprising
predominantly annuity management fees and capital participation
returns on invested capital. The economic model followed is
true to the principles tried and tested originally in the US
and Europe, which are: |
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The fund investment holding vehicles are
not traded publicly; |
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Funds are committed for the long-term but are closed-end
in nature, usually giving the manager five years in which
to draw the committed capital to make investments, and
a total of 10 to 12 years from the fund's inception to
return the capital to investors. Cumulative commitments
to private equity funds under Brait's management currently
total over US$1 billion; |
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| Cumulative funds committed |
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Management fees are payable on committed
capital independent of the amount drawn or the valuation
of the portfolio, representing a stable long-term revenue
stream. As a result, the interests of investor and manager
are aligned by allowing a patient and considered pace
of investment rather than rewarding a rapid deployment
of funds. Brait receives annual fees of approximately
2,0% on committed capital of its private equity funds,
reflecting the specialisation of the team and the intensity
with which it supports the investment processes; |
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The funds draw down cash for investment as and when
required by the manager and, on realisation, pass proceeds
directly back to investors; and |
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Unrealised capital participations are recognised in
income when the return of the fund's investments exceeds
certain threshold returns and are payable only once cash
has been returned to investors covering cash drawn down
for investments and fees, together with a preferred return
(generally 8% in US dollar terms). These capital participations,
which are dependent on a minimum capital commitment by
Brait and the investment team, typically represent 20%
of the returns. The private equity team shares in these
participations equally with Brait, again aligning the
motivation of all parties. |
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| Brief overview of Brait
Private Equity Model |
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Given the long-term nature of the commitment and
illiquidity of the fund investment, investors make careful and
extensive reviews of the manager. Brait enjoys relationships
with a premier group of investors who have made successive commitments
to Brait I, Brait II, Brait III and now Brait IV.
During the year, a number of new prestigious international and
local investors have committed to Brait's new fund, Brait IV.
Both new and existing investors have all formed a positive long-term
view of the Brait team, its investment strategy, and ability
to continue delivering outstanding returns.
Brait I, Brait II and Brait III, all now fully invested, invest
in later stage private equity transactions. Brait IV has an
investment strategy consistent with these prior funds.
Brait I is fully realised, and Brait II needs to exit one further
investment and will then be fully realised. Brait II was the
first South African private equity fund to raise US capital
and the SA vehicle of the fund, after Brait I, will be the second
fund to be fully realised.
Braitec, also fully invested, is focused on early-stage technology
investing, and represents less than 5% of Brait Private Equity's
funds currently under management. |
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Fair value of fund portfolio
investments
(cumulative) |
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