In recent weeks, South Africans have seen growing evidence of the devastating impact of the protracted lockdown on the economy. There is now a body of evidence suggesting that the contraction in Gross Domestic Product could be as severe as 10%, and the country looks set to experience the worst recession in living memory. If productive capacity is not preserved, South Africa could experience an L-shaped recession, whereby it takes a decade for the economy to return to its 2019 size.
This has prompted South Africa’s largest investment manager, the JSE- and LSE-listed Ninety One (previously Investec Asset Management) to launch an impact investment initiative – the Ninety One SA Recovery Fund, in association with Ethos Private Equity. The fund’s objective is to support the country’s productive capacity and economic recovery from the effects of the COVID-19 pandemic, while seeking an attractive return for investors.
With a focus on the urgency of the economic situation in SA, Ninety One istargeting a first close of the fund in July 2020. Ninety One will be targeting a fund size of R10bn, with funding raised via two closes from South African institutional investors.
There are good companies across all sectors of South Africa’s economy that will be facing funding needs that cannot be provided by the banks or the state. For some, the economic contraction will limit their access to capital to grow and expand existing capacity; for others, it will challenge their solvency as well as their resolve to remain operational.
Hendrik du Toit, CEO and founder of Ninety One, says the long-term savings industry has an important role to play in supporting the recovery of the SA economy by fortifying the balance sheets of otherwise competitive businesses to cope with the risk of a deeper or longer recession than initially anticipated. “The lockdown, while necessary to protect the nation’s health, has been akin to putting the economy into an induced coma.South Africa faces a once-in-a-generation economic challenge. With this fund, we would like to support quality businesses and protect the nation’s productive capacity, which will in turn preserve thousands of jobs and support the South African tax base.”
The fund aims to achieve a positive impact with attractive returns via a clear set of investment outcomes. Priorities for the fund are to protect SA productive capacity during the next 24 months, preserve jobs and protect permanent loss of equity value. The fund will consist of a concentrated portfolio with an appropriate mix of senior and subordinated debt, preferred equity, listed equity and private equity with a deployment time horizon of 18 to 36 months. It will combine the credit and publicly-listed equity skills within Ninety One with Ethos’ private equity expertise.
The fund will initially seek to attract support from the country’s institutional investors. In addition, subject to the necessary regulatory enablement, Ninety One is hopeful that retail investors in South Africa will be able to access the Ninety One SA Recovery Fund. In other parts of the world, during the past five years, closed-end mutual funds have been created to facilitate retail investment into long-term assets.
Given the significant funding need, Ninety One hopes that this fund launch will encourage other private sector impact initiatives from the investment industry.
Ninety One is committed to building a better tomorrow for its clients and communities. In addition to launching the SA Recovery Fund, Ninety One has also made a R50m donation to the South African Solidarity Fund and its counterparts in Botswana and Namibia. The firm also recognises that its staff members are most aware of where the need is in their communities and is matching their charitable efforts. To date Ninety One, along with its people, has jointly contributed almost R10 million to charities chosen by staff members.
This post and content is sponsored, written and provided by Ninety One.