Novare impact fund seeks R2bn

• Objectives are financial returns and positive social outcomes by financing projects in fields such as renewable energy, agriculture and manufacturing

Novare Impact Investment Partners, a subsidiary of financial services group Novare Holdings, plans to raise R2bn in capital for investments spanning the renewable energy, agriculture and manufacturing sectors. The impact fund, which was started in 2020, has raised about 9% of its targeted capital amount from an institutional investor and is aiming to raise half the R2bn capital it seeks by the end of June.

Novare Impact Investment Partners, a subsidiary of financial services group Novare Holdings, plans to raise R2bn in capital for investments spanning the renewable energy, agriculture and manufacturing sectors.

The impact fund, which was started in September 2020, has raised R170m or about 9% of its targeted capital amount from an institutional investor, and is aiming to raise half the R2bn capital it seeks by the end of June, according to Benedict Mongalo, MD of Novare Impact Investment

Partners. The fund is expected to raise the full R2bn over the next 12 months though it may raise more capital up to a maximum of R3bn over that time frame, depending on investor appetite.

“We’re targeting R2bn in capital but it can be upgraded with a hard cap at R3bn,” Mongalo told Business Day.

“We’ve already been able to build a strong pipeline of projects in the agriculture, renewable energy, ICT infrastructure and manufacturing space.”

Impact investing aims to produce positive social outcomes by targeting both financial returns as well as measurable positive socioeconomic and environmental outcomes. It differs from corporate social responsibility (CSI) or environmental social and governance (ESG) initiatives in that it typically seeks to take a more active role in managing the projects or entities in which it invests.

While ESG funds buy or sell stocks based on how well companies manage risks in issues like pollution or governance, they don’t get involved in their day-to-day management. Impact investors take a more direct approach akin to private equity in that they seek to actively address specific social and environmental issues while also creating positive financial returns by leveraging the power of their equity investments to influence management decisions.

Data compiled by the Global Impact Investing Network shows that the assets under management of impact investment firms has climbed from zero to $715bn over the past decade. By contrast, Bloomberg Intelligence estimates that ESG funds will see assets top $53-trillion by 2025, which would represent more than a third of the $140.5-trillion in projected global assets under management.

That suggests that impact investing has significant room for growth as social and environmental issues become an increasingly important part of the investment landscape. Impact investing is also ideally suited to sectors such as agriculture, health care, education, renewable energy and valueadded manufacturing processes where opportunities for effecting positive social change are usually highest.

Novare Impact Investment Partners is targeting a fairly aggressive internal rate of return (IRR) of CPI (consumer price index) plus 12%. That’s almost double the 6.4% pooled IRR of funds greater than R1bn in size as measured by the RisCuraSAVCA Private Equity Performance Report: SA, which was published in June 2020.

“For us financial returns are non-negotiable because that is the only truly objective way to measure the performance you are delivering on the capital you deploy,” said Mongalo.

“However, we assign an equal weighting between financial returns and social and environmental returns. If you don’t target financial returns then you are merely a donor engaged in philanthropy but we also want to make a positive contribution to communities in terms of sustainable job creation and economic growth.”

As a level 1 BBBEE firm, Novare could benefit from President Cyril Ramaphosa’s much vaunted plan to unlock more than R1-trillion in infrastructure investment. Mongalo says the company plans to support the government’s infrastructure drive, and is eyeing projects in the latest bidder round of the Renewable Energy Independent Power Producer Procurement Programme (REIPPP) as well as inland freight port projects.

“It’s possible to make money and still make a difference,” said Mongalo.

“We think we can do that by playing a role in the area where investor interest merges with the interests of broader society.”

FINANCIAL RETURNS NON-NEGOTIABLE BECAUSE THAT IS THE ONLY OBJECTIVE WAY TO MEASURE THE PERFORMANCE