Eskom fund widens scope
• Power utility’s pension and provident fund to provide debt financing for established small-to-medium enterprises
The Eskom Pension and Provident Fund, which oversees the retirement savings of about 81,200 members, plans to boost its exposure to private equity and other asset classes.
The Eskom Pension and Provident Fund, which oversees the retirement savings of roughly 81,200 members who are past and present employees of the power utility, plans to boost its exposure to private equity and other asset classes.
The fund’s rising interest in other asset classes is part of a strategy to continue its diversification while boosting riskadjusted returns for members and making a positive social impact. A December 2020 report by RisCura and the Southern African Venture Capital and Private Equity Association (Savca) on investment returns showed private equity funds delivered a pooled internal rate of return of 8.6% over the past 10 years. The fund has about R168bn in assets under management of which about 3.6%, or R6bn, is already allocated to private equity investments.
Thandeka Meslane, acting CFO of the fund, said that while the fund had not decided exactly what it would increase its private equity exposure to in the short to medium term it would not exceed the maximum allowed allocation of 15% of assets under management.
“We are wanting to increase our exposure to private equity investments,” Meslane told Business Day in an interview.
“Private equity is quite a high risk but also the returns are quite attractive. But also, there’s an element of social return if you invest in infrastructure ... like hospitals, schools.”
A Savca report published on September 2 showed private equity funds increased their funding from SA-based investors, such as pension funds, insurers, family offices and banks, 200% to R11.1bn in 2020. That suggests local pension and endowment funds are becoming more comfortable with allocating capital to private equity, an unlisted asset class that seeks to buy stakes in companies and then sell them later for profit.
Meslane said that while the fund was “passionate” about infrastructure investment, the state retirement fund would not restrict its private equity allocations
to such investments. Private equity funds that focused on other sectors of the economy would also be considered, provided they had the necessary transformation credentials and their underlying investments had a high potential for positive social impact, particularly in terms of job creation. The fund is also in the process of launching a debt fund for small-to-medium sized enterprises (SMEs) for which it has allocated R350m in capital.
The fund will provide debt financing to SA-based SMEs that have had at least a three-year track record and can demonstrate signs of profitability prior to the Covid-19 pandemic. “We were quite intentional when it comes to transformation in the country, which is why at least 30% of the funding is allocated to 100%-black owned businesses as defined in the Financial Sector Charter,” said Meslane.
“Businesses in manufacturing and agro-processing will be prioritised [though investments will not be] limited to [that sector]. However, businesses involved in primary mining activities, gambling [and] the retail of alcoholic beverages will be excluded.”
Meslane said the fund wants to rebalance its exposure in the rest of Africa to achieve a better debt to equity balance.
While the fund’s rest of Africa investment book traditionally focused on listed and unlisted equity, it is looking to diversify its exposure into debt instruments, particularly those denominated in foreign currency. It expects the initial size of this exposure to be about $100m.
“Our Africa investments have always been in the equities space so we want to reduce that exposure in equities and have some nominal bonds in that book,” said Meslane.
“This portfolio will invest in sovereign Eurobonds so as not to be directly exposed to the local currency devaluation of the countries invested in.”
About 66% of the fund’s assets are managed externally by the likes of Old Mutual and Ninety One as well blackowned asset managers such as Mazi and Mianzo Asset Management. The bulk of the remainder is managed by the fund’s inhouse investment team, which invests directly across asset classes.
THERE’S AN ELEMENT OF SOCIAL RETURN IF YOU INVEST IN INFRASTRUCTURE ... LIKE HOSPITALS, SCHOOLS
Thandeka Meslane Eskom retirement fund acting CFO