MoneyMarketing April 2021 Alternative Investments Supplement

Alternative Investments WHAT’S INSIDE ...

SUPPLEMENT

Creating jobs and empowering disadvantaged groups

7 things you should know about 36ONE Hedge Funds

Futuregrowth has strategically invested in a number of promising VC companies, with more in the pipeline

For all private equity deals, SPE applies the filter of job retention or job creation, as well as the potential for above-average returns and growth

These funds are diversified and invest in South African and offshore equity markets

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Venture capital: a much-needed growth engine in a virus-ravaged economy

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30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

How private market investments offer real benefits for pension fund members

BY DAVID MOORE Head: Alternatives, Alexander Forbes Investments

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ith private markets, your investments are made tangible and real. They are investments into small and medium enterprises (SMEs), schools, retirement villages, roads and power plants that you and future generations will benefit from.

Private market investments in our everyday life John is a newly employed member in a pension fund. Each month when his contribution towards his employer-led pension fund gets deducted from his salary, a certain portion gets allocated to the investment portfolio of his choice.

John’s investment portfolio is an accumulation portfolio that aims to grow his retirement savings. Among other investments, an allocation to private market investments means John directly contributes to companies with which he interacts constantly, even if he doesn’t know it yet.

“Private market investments are those that keep on giving” John has just bought a home in a new development that offers affordable, quality housing in an estate close to his place of work – social infrastructure managers within private markets often fund such developments. John can easily work from home using the highspeed fibre connection in the estate.

Interestingly, the fibre-to-home provider that installed the connection was funded by a private equity manager within the private markets asset class.

Something that could interrupt both his work from home and his Netflix viewing is load shedding. Fortunately, his estate uses an off-grid renewable energy installation as their main energy supply, which is provided by a solar power supplier. Here too, the estate’s solar power supplier was a private market beneficiary of a domestic infrastructure manager.

During the day, John receives a call

from his sister who has some good news: she has just landed a job at a newly built shopping centre in her community – a bricks-and-mortar asset built, owned and operated by a direct property manager within private markets. This centre is also conveniently positioned near the retirement centre that John’s mom stays in and close to his younger son's primary school – both the school and retirement accommodation were financed by unlisted credit practitioners within private markets that filled the funding gap between sponsor and commercial banks.

All the above assets form part of private market investments that John had contributed to with his first salary – and will continue to do so with each contribution over his working career.

Social impact with commercial returns Private market investments are those that keep on giving. Their multi-dimensional benefits are a key rationale for their entry into mainstream investment portfolios, globally.

This is a far cry from being ignored in the past because they were difficult to convert into cash, at short notice.

However, they have consistently added significant value to domestic institutional investor portfolios by: • Boosting economic growth in creating jobs and key social infrastructure • Delivering lower volatility by not depending as much on investment performance relative to traditional investments.

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Why including hedge funds in a portfolio enhances returns

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he blended five-year performance of a basket of Amplify Investment Partners hedge funds proves that the inclusion of hedge funds in investment portfolios enhances returns and reduces risk, ultimately benefiting investor portfolios both pre- and post-retirement.

Marthinus van der Nest, head of Amplify, told the 2021 annual Meet the Managers conference that hedge funds provide for asymmetry of returns, or the ability to protect an investment on the downside but capture returns on the upside. “There is a common misconception that hedge funds only protect on the downside, which isn’t accurate,” Van der Nest said. “Access to tools such as short-selling, leveraging, and derivatives enables hedge funds to generate better risk-adjusted returns than long-only funds and to produce positive returns in both up and down markets that are uncorrelated to those of other asset classes.”

The importance of including hedge fund investment has become clear in the past five years’ low return environment when equity performance has been poor.

This is reflected in the All Share Index (ALSI), returning 8.23% per annum, while the blended performance of four Amplify hedge funds, over the same period, has reflected a return of 13.85% – from August 2016 until the end of February this year.

But Van der Nest warned that not all hedge funds are created equal.

“There are various hedge fund strategies and manager styles available to investors.

These broad set of skills and offerings can be daunting to new investors and, without a proper understanding of how the strategies and styles work in various market conditions, can result in a negative perception of the alternative asset class as a whole.”

Amplify appoints who it believes are the most appropriate independent hedge fund managers to manage their mandates. In fixed income, Amplify chose four specialist managers – Marble Rock Asset Management, Terebinth Capital, Acumen Capital and Matrix Fund Managers – as it wanted a diverse range of strategies, with the funds generating returns and taking positions at different areas of the yield curve. “Different managers, when blended together, provide a more diversified portfolio and range of outcomes,” he said.

For Amplify, one of the significant advantages of hedge funds is the low correlation to traditional multi-asset portfolios. When included, it provides higher growth, lower drawdowns and an overall better risk/return profile.

“For clients in the last couple of years before retirement, or those that are already in retirement, the last thing they can stomach is drawdowns. They are looking for real, smoother returns that ensure that their income in retirement isn’t going to be lower than expected,” Van der Nest said. “In an environment where you are getting poor returns from traditional asset classes, clients drawing an income from their investment could find themselves in a spiral of eating into their capital.”

As the local economy’s outlook is bleak, people think the possibility of a low return environment is here to stay. Coupled with globally high equity markets, many investors ask what if there is a downside from these levels. “This is where the benefit of hedge funds and low correlated returns comes to the benefit of investors, protecting clients when markets are under pressure, while still providing positive returns should they continue to reach new highs.”

For Amplify, investing in hedge funds is critical as they: • Provide a smoother return profile, protecting an investment on the downside while still capturing returns on the upside • Offer a broad range of strategies that are suited to various market conditions • Are an alternative asset class providing diversification and enhancing returns to traditional multi-asset portfolios • Ensure lower volatility and greater investment longevity for investors drawing a regular income from their investments.

Amplify has seven distinct retail hedge funds managed by hand-picked experts specialising in multi-strategy, equity and fixed income.

Marthinus van der Nest, Head: Amplify Investment Partners

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The true value of Alexander Forbes is the power of one team. As one, we combine 85 years of knowledge to offer our clients a seamless experience. Through a single platform, we share our expertise, experience and insights to strengthen our advice-led approach across our retirement, investment and health portfolios. Because as one, we can ensure the best outcomes to help our clients grow.

Go to alexanderforbes.co.za

30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Venture capital: a much-needed growth engine in a virus-ravaged economy

BY AMRISH NARRANDES Head: Unlisted Equity Transactions, Futuregrowth

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enture capital (VC) has long offered excellent growth potential to investors who are prepared to manage the higher risks associated with companies in the early stages of their journey. Not only are these entrepreneurial ventures essential engines of growth, but their disruptive business propositions provide healthy competition to the more established players in their industries – to the benefit of all the customers they serve.

Now more than ever, the South African economy needs the dynamism these companies have to offer.

Airbnb is an excellent example of a company that was born out of the 2008 financial crisis and completely changed the market for short-term holiday and business accommodation. After coming up with the idea of renting out an air mattress in their San Francisco living room, in 2009 founders Brian Chesky and Joe Gebbia received top-tier VC backing for their new company and went on to experience explosive growth.

“Now more than ever, the South African economy needs the dynamism these companies have to offer” The South African economy is reeling from the impact of the lockdown put in place in 2020 to prevent the spread of the coronavirus, and it is these types of fast-growing companies that will help provide the impetus needed to emerge from this crisis.

VC investment – how it’s done The multibillion-rand Futuregrowth Development Equity Fund (DEF) has been investing in early-stage companies for years and remains committed to finding and investing in high-quality VC companies that show significant growth potential. The DEF comprises a diverse range of companies, from early-stage businesses that offer higher but less reliable returns, to mature businesses that have already built up successful track records and provide lower but more consistent returns.

Futuregrowth’s investment team spends considerable time and effort identifying suitable companies and making investments where we believe we can propel the company’s growth to new heights and expand

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its reach beyond its existing footprint. For every 100 potential investments we look at, we only end up investing in two or three. Since the DEF was set up in 2006, Futuregrowth has strategically invested in a number of promising VC companies, with more in the pipeline. In late 2018, for example, we invested in Yoco, the innovative technology-driven point-of-sale payments provider. The DEF was the first South African institutional investor in the company and, to date, the investment has proved to be a success.

What are the main factors to consider? In our view, the younger the company, the more important the quality of the people driving the business. Also, success will depend on the size and nature of the company’s market, its revenue potential, the scalability of the business and the barriers to entry.

When analysing a potential VC investment opportunity, these are some of the questions we ask: • Is there a large addressable market for what the company has to offer?

• Is the company in a high growth market?

• What does the company offer that others don’t?

• Is the business proposition disruptive (groundbreaking and an agent of change) in its industry?

How does it compare to the competitors?

• What is the revenue potential, is the business proposition scalable, and are there barriers to entry?

• Does the business have a great management team?

We would prefer to back an A team with a B idea, rather than a B team with an A idea. Ideally, of course, we look to invest in a company run by an A team with an A idea.

• Does the management team have a mix of technical and business skills?

• Has the company gained traction in the market and is there proven demand for what it has to offer?

• Are the company’s forecasts achievable (realistic)?

• What could cause the business to fail?

“Futuregrowth has strategically invested in a number of promising VC companies, with more in the pipeline” LifeCheq – ticking all the boxes Investment date: February 2020 One company that met all these criteria is LifeCheq, a digitised holistic personal finance business. What we most liked about the company is that it has taken a complex and often daunting topic – personal finance – and used technology to offer its service in an attractive way to a far broader market than is traditionally the case.

LifeCheq’s differentiator is that it makes expert advice accessible to professionals and entrepreneurs who are inadequately served by the existing financial advice industry. The company can tailor and personalise financial advice to suit different individuals with different risk profiles by using data and algorithms to generate solutions. Most importantly, the business has an impressive management team, with all the credentials and experience to qualify as an A team. The four cofounders and members of the executive management team have a diverse range of experience, from financial services product design to software engineering.

LifeCheq more than met our requirements as a disruptor in the financial services industry, with a welldefined, addressable market, providing technologybased personal finance services to mass-affluent and emerging-affluent individuals. We also took comfort from the fact that the business had already built traction and proved its credentials to an existing investor that had earlier bought into its business vision and proposition.

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ALTERNATIVE INVESTMENTS SUPPLEMENT

that Futuregrowth remains committed to backing entrepreneurs who are creating proudly South African products, services and IP – and taking them to the rest of the world, thus raising the South African flag high.

SweepSouth – giving the vulnerable a voice Investment date: June 2020 We added to our growing VC portfolio when we invested in SweepSouth, a distinctive online platform for booking, managing and paying for home cleaning, and a variety of other services.

The business, which was first established in June 2014, has expanded its offering from its personalised home cleaning roots to gardening and pool cleaning, heavy lifting, fixing and maintenance, and, most recently, commercial sanitation. Its services are available in South Africa’s major metropolitan areas of Cape Town, Johannesburg, Pretoria and Durban.

As an early-stage business disruptor, SweepSouth is solving South African-specific problems. The company has taken a large segment of the informal sector – one of the biggest employers in the country – and formalised it, giving this part of the workforce unusual protection and security in their working environment.

The SweepSouth management team has a demonstrable track record in building the company to where it is now, while constantly engaging in ongoing innovation. Its social impact credentials are impeccable, playing a material role in empowering previously vulnerable workers to play an active part in their destiny by giving them a voice, and flexibility and control over their own time.

“The younger the company, the more important the quality of the people driving the business” offering and remarkable team, which has extensive and in-depth industry knowledge and experience, including widespread audiological, engineering and IT skills. The group has conducted over one million hearing tests and screenings worldwide since its inception and its products are now used in over 68 countries. The company’s vision is to provide affordable and accessible hearing healthcare solutions through its world-first smartphone technology.

We believe that the investment in hearX shows

Building our VC portfolio responsibly The hearX investment expands the DEF portfolio’s global reach considerably and adds an entirely new dimension to the existing pool of assets within the portfolio. It is also in line with Futuregrowth’s commitment to improving all South Africans’ lives by striving to identify opportunities that yield optimal financial returns for our clients and make tangible contributions to society. These include VC investments in transport, infrastructure, housing, agriculture, development finance, renewable energy, health, education and SMME development, among others, and are complemented by a variety of maturing and established companies in the developmental space.

The DEF is well positioned to benefit from the significant growth potential of these entrepreneurial, early-stage investments – while relying on its core established investments to provide the security and consistency of returns needed to balance out the riskreturn profile of the Fund.

Futuregrowth Asset Management (Pty) Ltd (“Futuregrowth”) is a licensed discretionary financial services provider.

hearX – democratising and decentralising global access to hearing care Investment date: December 2020 According to the World Health Organisation, hearing loss is one of the most widespread health conditions worldwide, as 466 million people have permanent disabling hearing loss. About one third of people over 65 years of age are affected by disabling hearing loss. The prevalence in this age group is most significant in South Asia, Asia Pacific and sub-Saharan Africa.

We added global exposure to the DEF portfolio by investing in another homegrown company, hearX – an early-stage medtech company. The hearX Group was established in 2016 by Pretoria-based academics and still operates from there.

We saw great potential in the company’s product

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30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Africa’s first sustainability-linked bond launched

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SE-listed Netcare, which operates a network of hospitals and other healthcare services in South Africa and Lesotho, has launched Africa’s first sustainability-linked bond, in partnership with Standard Bank.

The coupon rate of these bonds is linked to the issuer’s achievement of certain preagreed sustainability performance targets. In Netcare’s case, the group aims to reduce its energy consumption, procure more renewable energy, reduce total carbon emissions, and further improve its water efficiency – partly by increasing its capacity to recycle grey water. In addition, Netcare is developing systems to ultimately convert all infectious healthcare risk waste (HCRW) produced on-site to inert products and achieve zero waste to landfill, outside the HCRW stream, by 2030.

Dr Richard Friedland, Chief Executive Officer of Netcare, says, “Our comprehensive environmental sustainability strategy developed in 2013 is firmly on track to meet our 10year goals and targets. Netcare is delighted to be part of a global community of healthcare institutions leading the transformation to climate-smart healthcare, and this innovative sustainability-linked bond will further assist us in achieving our longer-term goals.”

On 16 March 2021, Netcare, with Standard Bank acting as Sole Arranger and Sustainability Agent, executed on the continent’s debut sustainability-linked bond (NTCG01). The bond was listed on the interest rate market of the JSE on the 19th of March. Netcare raised a R1bn, three-year, unsecured note priced at 5.4% (3 month Jibar +175bps). If Netcare achieves its climate change mitigation and water efficiency targets linked to the bond, it will benefit from a step down in the coupon rate.

Carl Wiesner, Debt Capital Market Transactor at Standard Bank, says, “Through the offering of the sustainability-linked bond, Netcare was able to access a deeper pool of liquidity at a compressed upfront pricing level, with the added incentive of a quantifiable future pricing benefit, while investors are able to encourage positive forward-looking sustainable corporate behaviour. The large level of interest the market has expressed for this transaction demonstrates the increasing importance of ESGdriven investments in both the international and local capital markets.”

Netcare has already made significant progress with its sustainability programme. As of 2020, the company has solar installations capable of generating more than 20GWh of renewable energy, and had achieved a 24% reduction in energy Carl Wiesner, Debt Capital intensity per bed since 2013, against a goal of 22% Market Transactor, by 2023. In 2020, scope 1 and 2 carbon dioxide Standard Bank emissions reduced by 37% from 2013.

The progress that Netcare has made towards being a leader in environmental sustainability within the healthcare sector in South Africa, and the world, was recognised when the company achieved the distinction of being the only healthcare institution globally to have received gold awards – the highest accolade – in each of the four categories in the international 2020 Healthcare Climate Challenge Awards organised by Global Green and Healthy Hospitals (GGHH).

The awards were for Greenhouse Gas Reduction [Energy], Renewable Energy, Climate Resilience and Climate Leadership.

The company was also awarded the prestigious Association of Energy Engineers (AEE) Sub-Sahara African Corporate Company of the Year award in 2019, a global recognition across all industries.

Nigel Beck, Global Head Sustainable Finance at Standard Bank, says, “Over the course of the last 12 months, Standard Bank has been working closely with Netcare and institutional investors on a sustainability-linked product offering, advising on meaningful sustainability performance targets aligned to Netcare’s corporate strategy. We are encouraged by the overwhelming level of interest and demand the market has expressed for sustainable product offerings, which was evidenced by the extent to which the bond was oversubscribed.”

Along with other instruments, such as sustainability-linked loans, green bonds and social bonds, demand for sustainable finance solutions is rising fast in Africa.

Sustainability-linked corporate financing facilities offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding with a solution that also delivers an indirect socio-economic benefit for the communities and environments in which they operate. Investor demand is partly being driven by the recognition that companies that operate in a sustainable manner tend to have lower risk profiles and outperform over the long term.

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A retirement revolution

BY ADAM BENNOT Senior Associate, Alternative Investment Services, RisCura

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he focus in the retirement industry centres around there being enough reserves in the pension pot to go the distance, but a crucial consideration is the kind of environment that will be waiting to retire into.

With the world changing rapidly through advancements in medicine and technology, what does a sustainable retirement plan look like?

Cleaner and greener investing has become more urgent to achieve. The COVID-19 pandemic has been a stark reminder of the social, health and environmental issues South Africa faces. Pension funds have the ability to influence these issues through sustainable and impact investing.

There is a growing need to invest responsibly in a world that is worth retiring into. If the environment is uninhabitable, what will retirement savings be worth?

For long-term investors, retirement funds being key among them, sustainability should be the key objective. An unhealthy and unsustainable economy cannot serve investors who have a multi-decade investment horizon, and who are concerned about the livelihoods of future generations.

Projections can help to quantify how much we might need as a pension, but these don’t account for the havoc

facing our ecosystems and planet due to climate change. Sometimes, imagining a dystopian future helps us to face harsh truths.

Reimagine Imagine if, due to technology, the government increased the national retirement age to 85, for those who are able-bodied. Technology is already changing the narrative in real time for so many sectors of the economy, so it could conceivably contribute to see us living even longer.

South Africa will be a large, aging population 30 years from now. Ages 55-65 may be the common retirement range today, but many are retiring later if given the choice (some out of financial need), and if you have access to technology to keep you healthy, this is likely to grow.

Imagine a bionic hip and the extension it could bring to your working years. Imagine if there was a caste-system according to how much you’ve managed to save for retirement and if you didn’t meet a certain threshold, you could end up in a labour camp, farming waste into fuel for others to use.

Retirement saving’s worst enemies are inflation and environmental risks.

We must consider these risks, both the cost-of-living years from now, and the cost to our environment if we don’t invest appropriately.

If we are living longer and can work harder, anything is possible. The future impact of today’s investment decisions matters most. It may have been a persistently low-return environment in South Africa for some time, but we believe that investing for developmental impact can drive sustainable returns and help tackle the imbalances that characterise our country.

“There is a growing need to invest responsibly in a world that is worth retiring into”

30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Reimagining life after COVID-19 for private assets

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his year, the theme of the Southern African Venture Capital and Private Equity Association (SAVCA)’s virtual conference was ‘reimagine’ – an apt idea, given how the Coronavirus pandemic has forced people to relook at how they live their everyday lives.

MC Zipho Sikhakhane, CEO of EMZ Advisory, told delegates they needed to reimagine themselves in the context of SAVCA, “Reimagine the organisation itself and how it creates value, reimagine how we invest, and reimagine how we collaborate as an industry,” she said.

SAVCA Chairperson Lelo Rantloane, who delivered the conference’s opening address, also advised delegates to reorient themselves and their organisations to position for whatever the industry’s post-COVID future looks like. “We all need to rethink strategy, transform our organisations and the culture of our businesses to ensure success in the postpandemic world,” he said.

The theme was evident across all sessions of the conference as panellists and speakers related their individual perspectives on what it means to reimagine private equity investing after the pandemic.

Other notable recurring themes over the two-day conference included the role of infrastructure investing, the importance of collaborative and strategic execution, and the value of the social contract between the public and private sectors in South Africa.

The conference saw intense discussion around the proposed changes to Regulation 28 of the Pension Funds Act, which aim to make it easier for

retirement funds to invest in infrastructure to generate the returns investors need, while also acting as a resource to rebuild the country’s economy. The discussion highlighted just how much work still needs to be done in this area for the implementation and execution of the proposed changes to be successful.

Ensuring alignment between retirement funds, that proper classification and definitions exist, and that oversight and monitoring is effectively undertaken, are all steps in the right direction.

Further discussion was centred around the business case for investing in Southern African private equity.

Encouragingly, both Runa Alam, CoFounding Partner and CEO of Development Partners International (DPI), and Vuyo Ntoi, Joint Managing Director of African Infrastructure Investment Mangers (AIIM), pointed out that despite the devastation COVID-19 has wrought, the fundamental business case for investing in Southern African private equity has not changed.

“Demographics are still young and driving productivity, urbanisation is still high and technology take-up has accelerated as a result of COVID-19,” said Alam. “Wherever the opportunities lie, though, execution needs to be your defining feature. Your ability to execute is what really matters. This means having an excellent and cohesive team with complementary skillsets, a supportive culture and following proper processes and procedures,” she added.

Conference speakers also ran through some of the lessons they’d learned through the COVID-19 experience, which included

Alexander Forbes Investments wins SAVCA Impact Award

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lexander Forbes Investments has won the South African Institutional Investor Impact award from the Southern African Venture Capital and Private Equity Association (SAVCA) in recognition of its commitment to ESG and/or impact investing in South Africa.

SAVCA is a non-profit industry association representing 170 members across Southern Africa, who collectively have more than R185bn in assets under management.

The awards acknowledge excellence, dedication and innovation within the industry through a self-nomination and peer voting process.

“Despite the devastation COVID-19 has wrought, the fundamental business case for investing in Southern African private equity has not changed” the importance of frank conversations, how leadership is about value add – not just capital – and how technology has changed the way we operate and educate.

David Wilton, CEO of Zhang Partners, advised delegates not to look to Europe or Australia for expansion, “Think of expansion beyond South Africa as something you can do just north of the border.” Professor Nick Binedell, of the Gordon Institute for Business Science, called on speakers to share their thoughts on how South Africa should go back to basics to recover from the COVID-19 pandemic. The discussion centred on the roles the state and private sectors would have to play, how South Africa needs to digitally upskill its workers – especially black women and black youths – and lessons businesses learned through the crisis.

First-time awards The conference was not only about reimagining the future of the private equity industry and the region as an investment destination, it was also an opportunity for SAVCA to honour the excellence, dedication and innovation within the industry with the inaugural SAVCA Conference Awards.

The award is evidence of Alexander Forbes Investments being an active investor, leading investment into sustainable and community-focused private market assets for over a decade.

Alexander Forbes Investments demonstrated its ESG focus by engaging with its partner providers to foster ESG practices and transparent disclosures on ESG reporting. The company was an early funder of green, clean energy alternatives in South Africa, promoting the necessary transition from fossil fuel energy sources to more sustainable technologies. Furthermore, Alexander Forbes Investments continues to promote transformation and a more inclusive asset management industry through explicit investments into empowered asset managers with track records of performance across both traditional and private market asset categories.

“Alexander Forbes Investments believes that private market investments have a demonstrable ability to provide both commercially acceptable and socially measurable returns to clients,” says David Moore, Head of Alternatives at Alexander Forbes Investments.

“The SAVCA award reflects our continued efforts at

Winners of the various categories as voted for by their peers: • Acquisition – small/mid portfolio company: Sanari Capital for their investment into LightWare Lidar • Acquisition – large portfolio company: Sanlam Investments for their investment into the Cavalier Group • Exit – large or small portfolio company: Pembani-Remgro for their exit of Octotel Pty Ltd • South African Institutional Investor Impact Award: Alexander Forbes Investments (South African Private Markets Programme) • Fund Manager Impact Award: Norsad Finance • Service Provider of the Year: SANNE Fund Services Left to right: Tanya van Lill, CEO, SAVCA; Vuyo Ntoi, Joint Managing Director of African Infrastructure Investment Mangers (AIIM); Professor Nick Binedell of the Gordon Institute for Business Science.

leading in the field of ESG integration, ESG reporting and impact investing among institutional investors. Our innovative approach to private market investment through the Alexander Forbes Investments South African Private Markets Programme affords investors access to a blend of quality, cost-effective private market investments across infrastructure, private equity, unlisted credit and direct property that are structured in a way to provide orderly liquidity and access to a lowly correlated, low volatility return outcome with tangible social benefit to pension fund members.”

David Moore, Head: Alternatives, Alexander Forbes Investments

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30 April 2021

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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

8 www.moneymarketing.co.za

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.

30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT loss and maximises the probability of real returns over the long term.

7 things you should know about the 36ONE Hedge Funds

BY STASH MARTINS Investment Consultant, 36ONE Asset Management

3

6ONE Asset Management has a 15-year track record of managing hedge funds and is currently the largest hedge fund manager in the country. Our primary hedge funds are the 36ONE SNN QI Hedge Fund (QIHF) and 36ONE SNN Retail Hedge Fund (RIHF).

1. What are the main differences?

In terms of investment strategy, the two are mirrors of one another. Key differences include: Investor type Inception date

36ONE QIHF Available to qualified investors 01 April 2006

36ONE RIHF Available to all investors

01 December 2008 November 2016 (CISCA Inception) Investment R1 000 000 Lower investment minimums (regulation stipulated) minimums, dependent on provider Frequency of liquidity Monthly Daily and pricing 2. What is an equity long/short strategy?

This strategy predominantly generates its returns from positions in equity markets. This style of investing has historically produced equity-like returns with substantially

less volatility than traditional equity unit trust strategies over the long term. The 36ONE QIHF has returned on average 16% p.a. since its inception after fees. Importantly, not only has the volatility been 55% lower compared to the market (ALSI), but it has also experienced much lower drawdowns during the period.

3. What do these funds invest in?

These funds are diversified and invest in South African and offshore equity markets, as well as other financial instruments (such as cash and derivatives) to enhance returns and, importantly, to manage risk.

4. What are the objectives and who is best suited for these funds?

Capital preservation is key to these funds’ objectives.

They aim to outperform cash and generate absolute returns over the long term, regardless of market direction.

Investors looking to grow their capital in real terms over time, while significantly reducing the volatility associated with investing in equities, are best suited for these funds.

5. Are they available in retirement products?

Yes, Regulation 28 allows for a maximum of 10% in total to be allocated to hedge funds. We believe that hedge funds should form part of an investor’s investment portfolio, as a diversified portfolio limits the risk of permanent capital

6. A few benefits of investing in these funds include: • Increases diversification: The bi-directional strategy (from the long and short positions combined) means that we can generate returns in both upward and downward trending equity markets. The ability to go long and short broadens the portfolios’ ability to exploit a larger opportunity set.

• Improves risk-return profile: Not only can these funds generate profits from their long and short positions, but the short positions act to reduce market exposure. This can provide an element of protection (or hedge) when markets decline because the gains on short positions will offset the losses on long positions.

• Combats portfolio longevity: Our funds can reduce portfolio volatility and, in turn, play a role in keeping clients invested through market cycles, due to substantially lower drawdowns.

7. Fund accessibility The 36ONE RIHF is available via Sanne (our Manco) and also via certain LISP platforms. For more information on how to access our funds, please contact us.

Disclaimer: Bloomberg, Sanne as at 28 February 2021. Past Performance is not necessarily an indication of future performance. 36ONE SNN QIHF CISCA inception date is 01 November 2016. Sanne Management Company is registered and approved by the FSCA under CISCA, and retains full legal responsibility for the third-partynamed portfolio. 36ONE QIHF Highest and lowest rolling 12-month performance since inception: High 58.63%; Low -10.84%. 36ONE RIHF Highest and lowest rolling 12 month performance since inception: High 18.84%; Low -2.01%. Full mandatory disclosures can be obtained on our website by following this link: https://www.36one. co.za/legal/disclaimer 36ONE Asset Management Pty Ltd is a licensed financial service provider. FSP# 19107

R9 221 600

HAVE YOUR INVESTMENTS PERFORMED LIKE THIS? The 36ONE SNN QI Hedge Fund has returned an average of 16% per annum since inception in April 2006

R3 770 200

R1 000 000

April 2006

April 2013

February 2021

Disclaimer: Collective Investment Schemes in securities and hedge funds are generally medium to long-term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. Sanne Management Company (RF) (Pty) Ltd, (“Sanne”) (“the Manager”) is registered and approved in terms of the Collective Investment Schemes Control Act 45 of 2002. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of actual annual returns, fees, charges and maximum commissions is available on request. 36ONE Asset Management (Pty) Ltd (“36ONE”) reserves the right to close and reopen certain portfolios from time to time in order to manage them more efficiently. The Manager ensures fair treatment of investors by not offering preferential fee or liquidity terms to any investor within the same strategy. Additional information, including application forms, annual or quarterly reports can be obtained from 36ONE, free of charge.

Performance figures quoted are from Bloomberg and Sanne as at the date of this report for a lump sum investment, using NAV to NAV with income reinvested and do not take any upfront manager’s charge into account.

Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax.

Annualised return is the weighted average compound growth rate over the period measured. Sanne retain full legal responsibility for third party named portfolios. Highest and lowest rolling 12 month performance since inception (as at 28 February 2021): Highest - 58.63% and Lowest - 10.84%. CISCA inception date: 1 November 2016. 36ONE Asset Management (Pty) Ltd. is a licensed financial service provider. FSP# 19107.

36ONE_BarGraph_220x155_MoneyMarketing_1503_PrintReady.indd 1 2021/03/15 11:12 9 www.moneymarketing.co.za

If savings are your area, pension funds your business, investing your passion – we’ve got the information you need to read. www.moneymarketing.co.za

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