Editor's note

by Michael Avery

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As the end of 2022 hovers into view, South Africa’s ability to bounce back from a global pandemic is now being tested by monetary tightening that is almost as unprecedented in pace and scale as the money printing that accompanied the global response to COVID-19. 

US money supply growth has slowed to +4% year-on- year, down from a peak of +27% y/y in February last year. EU M2 money supply growth is at 6.6% y/y, and Japanese money supply growth is at +3.4% y/y. 

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Over the past six months, US M2 money supply has barely budged. The money supply impulse behind inflation, and growth, is clearly behind us. 

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With that, asset prices are resetting with all the concomitant volatility that is ushered in, as equities, bonds, property and alternatives all search for a new normal. 

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And signs across the globe show that growth is slowing. The consensus estimate is now a 73% chance of recession in the EU over the coming year, a 60% chance of recession in the UK, a 50% chance of recession in the US, and a 33% chance in South Africa. Broadly speaking, emerging markets have much lower probabilities of recession in the next 12 months than developed markets. 

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Of particular concern is tightening financial conditions across the globe. The Bloomberg Financial Conditions Index (BFCI) tends to move in the same direction as GDP growth and, through to September 2022, we have seen a deterioration in the BFCI, which suggests an impending slowdown in the US. 

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It’s the same situation in Europe, with a sharp deterioration in the Bloomberg Financial Confidence Index through to September 2022. 

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Not the sort of macro conditions supportive of active expansionary dealmaking. 

GPs will still be actively involved in their underlying portfolio companies; having helped navigate them through the treacherous waters of the global pandemic, they must now trim their sails to steer a course through a possible global recession. 

Adding to the pressure on GPs is the fact that local LPs are starting to question the low return trend emerging over the last few years (see page 1), one that threatens to halt the expansionary forces driving fund raising, and the growth and transformation of the private equity industry. 

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There’s much to consider for the new head of the industry organisation, Tshepiso Kobile, who was appointed on 1 November 2022. Kobile succeeds Tanya van Lill, who served SAVCA for over five years, and she will have her hands full in her first full year in charge.