Asset management company Ninety One has launched a fund to help aid the recovery of the SA economy, given the impact of the Covid-19 pandemic.
The Ninety One SA Recovery Fund, in association with Ethos Private Equity, was launched on Monday and aims to raise R10 billion from South African institutional investors.
"Given the likely depths of the recession, we think the long-term savings industry has to be part of the recovery in SA," said Nazmeera Moola, head of SA investments.
Ninety One has had initial talks with institutional investors across the private and public sector, throughout May, to gauge their interest. According to Moola, there is recognition within the long-term savings industry that it needs to be part of the solution as SA responds to the impact of Covid-19 on the economy.
The fund will initially attract support from South African institutional investors, such as pension funds. But it also plans to expand access to retail investors, subject to regulations allowing it.
The impact investment initiative is geared at supporting companies who were viable before Covid-19 hit, but are now facing "severe pressure" on revenues, Moola explained. "These are businesses which we think are still important to the economy for a three to five-year view, but on a 12 to 18-month view could face a fair bit of pressure."
The fund has a broad mandate in terms of the assistance it can provide these businesses. For example, either with a loan, an equity injection or a hybrid of the two. Moola explained it was important to be able to "bring solutions" to companies based on their needs.
"You may find a company already having a fair bit of debt from a bank, and what they need is equity or a subordinated loan to support their capital structure," Moola explained.
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Commenting on how the fund might benefit businesses, chief executive of Ethos Private Equity Stuart Mackenzie said that the private equity industry has "proven abilities" in being able to support businesses in their strategies with capital and expertise, which would come in handy as they navigate through the Covid-19 crisis.
In terms of its portfolio of business, Ethos has helped with setting up crisis management processes, supporting balance sheets and helping them position strategies for their recovery. "We think the active management capabilities of private equity are ideally suited to this moment," he said.
According to Ninety One's estimates, the market would need between R50 billion and R100 billion in funding over the next three years. Moola said that the R10 billion figure is already ambitious but there is room to raise more.
"We also want to encourage other investment managers to think of appropriate solutions as well. It's not just about Ninety One finding the only solution; we're taking the first step," Moola said.
While the fund is specific in supporting businesses – protecting current capacity, jobs and the tax base – Moola said that in the medium-term infrastructure programmes will be an important part of the economic recovery.
Ninety One expects growth to contract between 8% to 10% this year. It's important to maintain productive capacity to avoid an L-shaped recovery, which could take up to 10 years to return to 2019 GDP levels, Moola said. "That scenario is unsustainable… If that is the case, we will see some significant social dislocation along the way."
A wide U-shaped recovery, which would see the economy bounce back in two to three years is possible - if we can preserve productive capacity, Moola said.
This article was amended at 13:30 on Monday 8 June, 2020 to reflect the market would require between R50 billion and R100 billion over the next three years. An earlier version stated "million".