30 April 2021
ALTERNATIVE INVESTMENTS SUPPLEMENT
Creating jobs and empowering disadvantaged groups
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n a win for the private equity sector in South Africa, as well as transformation in the agro-processing industry, Sanlam Investments, through its private equity business Sanlam Private Equity (SPE), last month acquired a majority stake in the Cavalier Group of Companies – a supplier of premium red meat products and the largest employer in the Cullinan region of Gauteng for an undisclosed amount. The Cavalier Group of Companies specialises in creating the shortest and most cost-effective route for red meat products from farm to fork. The Group consists of five entities: Cavalier Foods, Cavalier Livestock, Cavalier Abattoir, Cavalier Feeders and the holding company. The deal is the first to close from the Investors Legacy Range’s Private Equity Fund, one of three impact funds launched in June 2020 with a collective goal of creating or preserving 27 000 South African jobs – while still delivering value for investors. Cavalier, one of only two Woolworthsapproved red meatpackers in South Africa, employs 1 412 staff. Paul Moeketsi, Managing Partner, Sanlam Private Equity
SPE has acquired a majority stake in Cavalier Group in a replacement capital transaction, acquiring the stakes from both the Land and Agricultural Development Bank of South Africa and Griekwaland-wes Korporatief Bpk. The Land Bank shares were earmarked by the state-owned bank to be sold to an empowered equity partner to bring about muchneeded transformation in this largely untransformed sector. This investment by SPE comes at a time when the Cavalier Group had started embarking on various growth initiatives and when the business needed a strong and empowered equity partner to help it achieve its growth plans. This planned growth by the company will create further employment opportunities – another win for jobs at a time of record-high SA unemployment levels. SPE managing partner, Paul Moeketsi, says Cavalier is a robust business with strong diversification and growth potential. “As SPE, we partner with strong management teams, and we invest in businesses that have good growth prospects and where we believe our involvement will unlock additional value in the business. We were attracted to Cavalier Group because we believe that this business meets these requirements. While Cavalier Group holds supply contracts with major retailers in South Africa, new opportunities can include exporting products to the Middle East and supplying quick-service restaurants and hospitality businesses.” As a keen impact investor, SPE was drawn to the Cavalier Group, in part because of their dedication and commitment to transformation. It is the largest employer in the Cullinan
region, and 60% of its employees are women. They are also in the process of rolling out several projects for the benefit of the community and for its employees, most of whom are local, previously disadvantaged individuals. “Our impact strategy is to create jobs and empower disadvantaged groups, focusing on women empowerment and youth unemployment. We also invest in companies that offer job growth to their employees, as well as opportunities to improve their standards of living,” Moeketsi adds. Cavalier also boasts a strong ESG track record. They have installed solar panels and a biogas plant using organic animal material. The company has also shown good governance in ensuring compliance with food safety regulations and health and safety protocols. Cavalier recently built a state-of-the-art meat processing, deboning and packing facility for its AAA-grade red meat business and is poised for growth. With its vertically integrated value chain, and as the largest red meat copacker in the country, Cavalier is strategically positioned to take advantage of several red meat opportunities in future. “We are excited to have a partner such as Sanlam Private Equity in our business. With their strong empowerment credentials and their strategic focus of helping businesses grow, we are confident our partnership will be a very successful one in the future,” says Kabols Le Riche, CEO and founder of Cavalier Group. Moeketsi says SPE expects to announce another deal from the Investors Legacy Range’s Private Equity Fund soon as part of their strong pipeline of impact investment opportunities. “For all private equity deals, we apply the filter of job retention or job creation, as well as the potential for aboveaverage returns and growth. We look for quality businesses that need capital and that have the management expertise to move to the next level.”
SA’s first impact fund of funds investment series launched
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ebruary’s national Budget Speech made it clear that government’s ability to spend on developmental programmes that impact the lives of South Africans is extremely limited. According to purpose-driven investment firm RisCura, it is time for institutional investors to take action and work towards investing for a better South Africa. RisCura is applying its extensive institutional investment experience to impact investing and has launched the country’s first impact fund of funds series, in line with the globally recognised definition of impact investing “to generate positive, measurable social and environmental impact” within South Africa, while still delivering competitive investment returns. The impact funds in this series focus on unlisted debt, unlisted property and unlisted equity.
“The fund of funds structure also helps to manage risk” “Retirement funds and other institutional investors are not blind to the myriad social and developmental needs facing South Africa. But finding ways to invest their
pools of capital to directly address these issues is not always easy,” says Malcolm Fair, RisCura MD. “We’ve always focused on helping our clients find ways to ensure their members are financially secure when they retire or fall ill. But what if the environment and society they retire into are on the point of collapse, or the health system they need to rely on is failing? This is the question driving us to create new solutions for our clients. Sustainable financial returns can only be generated, and later used, in a healthy society and environment.” Experienced in establishing and managing technically intricate portfolios, the fund has launched after months of extensive work in modelling this impact solution with input from asset managers, institutions and local experts in the field. RisCura’s series of impact investments for institutional investors uses a fund of funds structure. “Using a fund of funds structure enables us to create a pooling mechanism for longterm impact capital that can provide a stable source of funding for commercially competitive impact and development projects that align to both South Africa’s National Development Plan (NDP) and the UN Sustainable Development Goals (SDGs),” says Fair. “The fund of funds structure also helps
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to manage risk. Imagine if you have only invested in one fund and it experiences a disastrous credit event. This could wipe out 5-10% of the portfolio. In a fund of funds, this risk is mitigated through diversification as the number of counterparties multiplies.” Unique to these funds is their liquidity, despite being primarily invested in unlisted instruments. Investing in the unlisted space often means long initial investment terms of 7-10 years, whereas RisCura’s funds will have much shorter initial investment periods, whereafter the products have innovative design features that work to provide short-term liquidity. “Liquidity has long been an issue for smaller institutional investors who often
Malcolm Fair, MD, RisCura
balk at the long investment terms of, for example, many private equity funds. By introducing specific liquidity provisions, we hope to ease concerns around the practicalities of investing into unlisted investment vehicles.” The RisCura funds will also explicitly measure and monitor the impact they are having in each of the priority investment themes. “There is a great need for impact capital, and part of our intention in developing this series of funds is to help support and grow the impact investment industry in this country. We want more asset managers to have funds that are explicitly focused on making an on-theground and measurable impact on the lives of South Africans, for the good of South Africans,” says Fair. By mapping the objectives of the National Development Plan 2030 to the targets and objectives of the UN Sustainable Development Goals (SDGs), RisCura identified eight priority investment themes to invest in: • Quality education • Quality healthcare • Creation of quality jobs • Inclusive finance • Infrastructure • Clean energy • Affordable housing • Sustainable agriculture.
