A new asset class has come to town in South Africa that aims to solve some of the illiquidity challenges by investors in private equity and alternative investments. The new investment vehicle – called a secondaries fund, which buys pre-existing investor commitments and offers investors the opportunity to buy the asset at a discount to participate in further upside that may arise is being brought to market by MeTTa Capital. CNBC Africa is joined by Tivon Loubser, Co-fund Manager, MeTTa Capital for more.
Let's shift focus to a new asset class that has come to town in South Africa aiming to solve some of the illiquidity challenges by investors in private equity and alternative investments. The new investment vehicle – called a secondaries fund, which buys pre-existing investor commitments and offers investors the opportunity to buy the asset at a discount to participate in further upside that may arise is being brought to market by MeTTa Capital. I am joined by Tivon Loubser, Co-fund Manager, MeTTa Capital for more on this. Tivon, thanks so much for your time. I see that you say that this particular product is gaining traction internationally. It is well received. The argument is being made. Perhaps maybe just to begin by giving us the ABCs of exactly what it is you've brought to market and how it will work. Sure thing. Good afternoon, Fifi, and thank you so much for having me on. So as you correctly say, secondaries have been garnering massive traction globally. So I think in 2024 alone, globally, we saw $144 billion transaction value. And at present, there doesn't exist a solution in South Africa. Now, it's very much needed in South Africa. Essentially, what secondaries does is it provides liquidity to private capital markets, which have traditionally not had the liquidity. So investors are investing in brilliant products, but they aren't reaching exit events. And that is where our product, MeTTa Secondaries, comes into play. So doesn't it defy my basic understanding of private equity is the kind of investor that is patient with their capital, patient with their money, and the investor that knows that maybe five, seven, 10 year term, this is when you will potentially get the return. So with this investment providing liquidity, I'm just trying to understand whether we are redefining private equity as it does stand right now. Correct. So traditionally, private equity is a longer term investment. It caters to those individuals who have patient capital to institutional investors. But the crux remains that there are no guaranteed exit events. So we're ending up with what are called zombie funds where private equity vehicles have said, you know, we're looking to realise an exit after 10 years, you get to 10 years time, and there is no actual exit event. And people need liquidity events along the way. You know, life is uncertain. People don't know when they're going to need to call on capital. And that's exactly what this product caters to. That's quite interesting when you talk about the fact that there are a lack of exit options, as it were. And perhaps maybe you can talk to us a little bit based on your understanding as to why that is the case, why we are sitting with this position where these zombie funds, I mean, is it the fact that, you know, the price is not right for the exits to happen? Is it the fact that I mean, one of the routes that I know exits have happened is by listings or IPOs on stock markets like the JSC? Is it the fact that maybe that environment is not conducive? Just help me understand the math in that regard. Yeah, correct. So I think firstly, it's been furthered along by a growth in private equity. So we've seen larger transaction volumes. So far more investment products, and that means far more investment products need to find natural exits. Traditional markets tend to be struggling in terms of the number of delistings and new listings. So, you know, exit investments or exit opportunities do become more scarce. Notwithstanding the secondaries universe and the secondaries funds globally really have, you know, provided a solution for this issue. OK, so you are bringing or the inaugural investment that you have brought to market for investors who are interested in this product, the Calon Ventures Partners Fund. You can talk to us about this. I see that it's skewed mainly towards technology. But within that answer, you can tell us exactly how you select the funds that you will be choosing to offer to market. I mean, essentially, what is the criteria? I think maybe I'll start with the second part of your question there. And where we're very fortunate is that because of the lack of liquidity, we are able to enter into options on high quality assets. So brilliant assets, but people just need liquidity events. So it's not like these are bad assets that people are looking to dump. They're brilliant assets. And we're able to acquire these assets at a discount because people need liquidity or investors need liquidity. So the first parcel that we've identified, as you correctly said, is Calon Venture Partners One. It was a tech venture capital fund. It was a Section 12J fund, quite importantly. And it's reached its maturity and investors are looking to exit. It has brilliant underlying companies, the likes of Ozo, which Temsense have recently invested in at a two billion Rand valuation, Senmark, Kaskan, to name a few. And we're able to pick it up at a large discount. These assets as well then, we've got the benefit that they've got a seven year demonstrable track record. They're closer to an exit. So they've been de-risked from that very early stage tech startup world. But we're still able to benefit from the large upside potential and also acquiring it at a large discount. Early days yet in terms of the product that you have brought to market. But maybe you can talk to us about what you have seen so far in terms of reception, but perhaps maybe more importantly, because it's so early, how you do see the demand curve evolving? Sure thing. So we've just gone to market with the fund and we've had a huge amount of interest already. It's a very small parcel. Secondaries tend to be more opportunistic, and this is sort of a proof of concept trial. But we've seen a resounding uptake in interest and we are extremely excited by the prospect. And it also augurs well for our future investments. We're looking to roll out a number of future secondaries products and the future funds won't focus just specifically on one investment. We're looking to create a basket of secondaries interests. So just briefly, all investments have a risk. So walk us through really briefly what the risk factors are involved here. Correct. So again, you know, a tech startup or tech startup fund tends to be very high risk. You know, is a startup going to be around in five years time? We're fortunate in that we kind of circumvent that because we're already seven years down the line. Like I mentioned, they've got a demonstrable track record, really strong teams in place now. But exit risks and liquidity risks are still prevalent, you know. So how are we addressing that? How are we going to get our investors to exit in five years time? We're fortunate that all of these investments are already in exit phase, so they're seeking exit opportunities. We will take positions on boards and actively go out and seek liquidity to bring for our investors. But yeah, it's a really nice investment in that it has a track record, which oftentimes in private capital and alternatives, you don't have the luxury of that. All right. So interesting times ahead just to see, of course, how this evolves in the South African market. But Tyrone, thanks so much for your time. So we'll leave it there. Tyrone Lopesha, co-fund manager over at Metacapital.
Theme: Introduction of MeTTa Secondaries fund to address liquidity challenges in private capital markets
MeTTa Capital has introduced a new asset class in South Africa known as the secondaries fund, aimed at addressing the liquidity challenges faced by investors in private equity and alternative investments. The secondaries fund buys pre-existing investor commitments, offering investors an opportunity to purchase assets at a discount and potentially capitalize on further upside potential. The Co-fund Manager of MeTTa Capital, Tivon Loubser, explained that the concept of secondaries has gained significant global traction, with $144 billion in transaction value recorded in 2024 alone. Despite this global trend, South Africa has not had a solution for illiquidity in the private capital markets, making the introduction of MeTTa Secondaries fund crucial for the local investment landscape. The traditional nature of private equity investments, which typically require long-term commitments, has led to the emergence of 'zombie funds' where exit events fail to materialize. The lack of exit options in the market has been exacerbated by the growth in private equity transactions, resulting in a scarcity of exit opportunities. MeTTa Secondaries fund aims to provide a solution to this issue by offering liquidity events to investors along the investment timeline. One of the initial offerings of the MeTTa Secondaries fund is the Calon Ventures Partners Fund, focused predominantly on technology ventures. This fund, with a seven-year demonstrable track record, presents investors with an opportunity to access high-quality assets at a discounted rate. Despite being in the early stages of market introduction, the reception towards MeTTa Secondaries fund has been promising, indicating a growing demand for liquidity solutions in the private capital markets. The fund's future investments will diversify across a range of secondaries interests to offer investors a basket of opportunities. While acknowledging the inherent risks associated with high-risk investments like tech startups, Loubser highlighted the active approach taken by MeTTa Capital to address exit and liquidity risks. By actively participating in boards and seeking exit opportunities, the fund aims to provide a secure investment environment for its clients. As the South African market adapts to this innovative investment vehicle, the success of MeTTa Secondaries fund will be closely monitored to determine its impact on the local investment landscape.
"The lack of exit options in the market has been exacerbated by the growth in private equity transactions, resulting in a scarcity of exit opportunities."
['MeTTa Capital', 'secondaries fund', 'private equity', 'alternative investments', 'liquidity challenges', 'Calon Ventures Partners Fund', 'technology ventures', 'investment landscape', 'MeTTa Secondaries fund', 'exit opportunities']