Research is key to 12J investing

TIPS TO FIND PROFITABLE OPTIONS 12J space is a unique opportunity to make a positive social, economic and environmental contribution to SA.

of it) is material. VCCs must design exit arrangements for investors who wish to disinvest after five years, at the outset of the agreement. Be alarmed if there’s no mention of exit arrangements and the future price of your investment.

If you invest in a 12J project, the law allows the VCC three years to invest your capital. It’s up to you to ask when your money will be deployed and to be reassured that it won’t spend three years invested in the VCC money market account while the company looks for investable projects. The VCC’s management team should have a deal pipeline and projects lined up ready for equity investment. Recently, it was emphasised that investments should be allocated quickly and not invested unduly in interest-bearing accounts.

When you’re narrowing down your field of potential investments ensure projected estimates for dividends and capital growth are calculated on the same basis. Estimated returns should be based on gross investment, not post-tax-rebate investment.

It’s the norm for VCCs or their managers to charge fees based on assets under management, performance fees and third party costs. If there are additional fees levied for director’s fees, initial fees or any other kind of expenses, ensure you understand the likely impact on the investment return.

Historically, the calculation of performance fees has been problematic in the 12J companies as they have not all been calculated on the same basis. Some companies calculate performance fees excluding the tax-saving component, others including it.

This calculation can make an enormous difference to the final returns enjoyed by investors.

Disclaimer: this article shouldn’t be construed as solicitation, advertising, sale, or advice. Trevor Lee is a financial planner at Rosebank Wealth Group