SMEs: A new asset class
The Kisby Fund aims to create a new investible asset class, SMEs, to give South Africans a reason to hope.
In a glitzy Sandton office tower, looking over the M1 at densely populated Alexandra, home to almost a million people, Mark Barnes, executive chairman of the Kisby Fund and the Purple Group, muses: “That is simultaneously the future of South Africa’s economic growth, and precisely what is wrong with South Africa’s economy.”
When listed companies start investing in glittering head office properties in Sandton rather than in new or existing business opportunities, you know something is wrong.
Barnes’ thesis is that established capital is in a feedback loop, supporting only those people and companies within the system. Those not in the system are locked out of the economy, unable to grow their businesses because they cannot access capital, or they cannot access capital at affordable rates.
He has been voicing his frustration about the exclusivity of SA’s economy for years, and tried to do something about it as CEO of the SA Post Office.
Blocked from incorporating PostBank into the working of the Post Office and using its network to extend financial services into the heart of South Africa, Barnes has moved on to a new project: to make SMEs the most investible and attractive asset class in South Africa.
Bonds, equities and property have been the gold standard for investors for decades, delivering handsome returns. But this is changing, and investors need to be alert to other opportunities. “If you want to be in the next game, the gap is in the real economy, which has inappropriate if any access to capital.”
Ideally, within three years, SA’s capital allocators will have 10% to 20% of their assets invested in this “real” economy. By this he means in medium-sized, unlisted businesses with potential to grow and create jobs.
“Our economic system is entrenching economic inequality, and if we do not change this, revolution will be the end game.”
With Fatima Vawda, 27Four Investment Managers CEO; Sean Emery, CEO and co-founder of Rainfin Credit marketplace and non-executive director of 4AX Debt Services; and Warren Wheatley, founder and CIO of Lebashe Investment Group, they have rolled up their sleeves to establish the Kisby Fund. The fund was launched in June and aims to raise R5-billion (over several investment rounds) to invest into hundreds of medium-sized businesses that with capital, experienced oversight and “a bit of hugging”, have potential for exponential growth. The founders hope to create jobs. That is the primary goal and one of the selection criteria will be a company’s ability to create jobs.
They believe they have developed an offering that aside from providing investors with an attractive return can be scaled to provide a “mass lending” solution.
The first rung in the ladder is reach, provided by Arena Holdings, owned by Lebashe. Using newspapers, the Kisby story can be circulated far and wide.
Next is assessing potential clients for creditworthiness. Technology is vital. 4AX Debt Services runs a technology platform that will automate due diligence. The tech will not crunch details such as an owner’s ability to sign personal surety; it will crunch cash flows and growth prospects. If a loan is provided, it will offer a daily dashboard monitoring the health of an investee company’s cash flow and financial performance. Then a prospective company is assessed by an investment committee, which has broad skills, from Barnes’ 35 years in financial services to Jennifer Chetty-Feinberg’s corporate finance and Andile Khumalo’s entrepreneurial skills. Those that make it through this will be presented to funders for a final investment decision.
While Kisby is primarily a debt fund, there is no one size fits all funding approach, with debt and equity-like debt blended according to the needs of each business. Finance will be provided at more attractive terms than banks, microlenders or private equity. Loans will range from R1-million to R100-million.
Barnes is determined the fund will support the “neglected” economy, formal or informal. At the same time companies need to be compliant with SA’s laws and regulations.
“If a company is worth the investment we will do what it takes to ensure they are compliant and presentable by the time they reach the investment committee,” he says.
Working with SMEs is time-consuming, but Barnes is confident Kisby has the capacity. “We are full up with mentors. People are phoning us, offering their skills and support. We will surround our SMEs with support.”
Have the funders come to the party? Discussions are under way with four or five funders and the fund will have its first close before the end of the year.
Are the SMEs there? Of this Barnes has no doubt. DM168
If a company is worth the investment we will do what it takes to ensure they are compliant and presentable by the time they reach the investment committee .