Meeting Africa’s socio economic needs
NO TWO investors are perfectly alike, and many resent being forced into a constrictive portfolio consisting of equities, bonds, property and cash.
To cater for various idiosyncrasies, alternative investment markets have developed not just for private equity, infrastructure and hedge funds – but also for objets d’art, wine and even comic books.
The primary objective of such investments is to reduce portfolio volatility, enhance returns, protect against inflation and ultimately provide diversification benefits. An alternative portfolio can provide exposure to a range of sectors that exhibit low correlation to traditional assets while providing opportunistic market exposure to return profiles which are different to equities and bonds.
In an interview with Moneyweb, Paul Boynton, CEO of Old Mutual Alternative Investments (OMAI), estimated that the global alternative investment industry would grow to be worth around $13 trillion by 2020, and is predicted to be the fastest growing segment of the asset management industry globally over the next 10 years.
OMAI is the largest private alternative investment manager in Africa with R54bn assets under management and a combined focus on positive returns and positive impacts. It delivers innovative thinking in private equity, infrastructure, mezzanine debt and a range of impact funds.
“In pursuing superior returns, we identify attractive investment opportunities overlooked by others who baulk at high barriers to entry, out of favour industries or mispriced assets.
“Yet, our entrepreneurial approach and on the ground experience in housing, infrastructure, sustainable energy, education and private equity heightens our ability to select and deliver on our investment goals,” Boynton explains.
Extensive experience, expertise and networks enable OMAI to uncover attractive deals, streamline project execution and ensure sustainability.
All of its investment activities have the advantage of the Old Mutual group’s joint operating platform, distribution capabilities, comparative learning and specialist focus in Africa.
Its team based philosophy enables a diverse range of professional capabilities to be brought to bear. “This in turn enables us to conclude complex investments, requiring bespoke agreements and ongoing active management.
“We form strong partnerships with government departments, financial institutions and industry experts to improve the success of each investment opportunity. Africa is an emerging market characterised by potential and opportunity – a continent touted as the cornerstone of global growth.”
The most pressing need in Africa at the moment is for infrastructure. “For investors, the most compelling reason to invest in African infrastructure is that it answers the region’s fundamental needs. Above average GDP growth rates, a growing middle class and increasing urbanisation, ensure ever increasing demands on infrastructure.
OMAI is involved in deals across the African continent through the five infrastructure funds managed by African Infrastructure Investment Managers (AIIM).
Africa’s need for infrastructural investment represents a massive opportunity and promotes secondary industry growth.
For instance, it has been estimated that improving infrastructure to the level of middle income countries would add 3 to 4 per cent to the annual GDP growth rates of Kenya and Nigeria.
We leverage our existing capabilities in housing, infrastructure development, sustainable energy, education and private equity, to deliver on our investments across the continent,” says Boynton.
OMAI is the largest equity investor in infrastructure on the African continent with the longest track record. Its investments span sectors and services like renewable energy (solar, wind and hydro generation), thermal energy (gas fired generation) and economic infrastructure (pipelines, roads and railways).
“Infrastructure investments are becoming an essential component of many investor portfolios. This is largely due to the fact that infrastructure generates predictable cash flows and competitive real returns over the long term, with relatively low levels of risk.”
In South African private equity, OMAI has successfully invested over R7.9 billion in 29 direct investments and returned in excess of R15.4 billion to investors since 2004.
“Private equity investment is one of the most underutilised opportunities to drive economic growth in South Africa.
“Its long term and growth focused nature, coupled with active stewardship, means that private equity can positively contribute to the real economy through job creation, transformation, sound governance practices and enterprise development,” says Boynton.
Moreover, private equity has consistently outperformed the listed equity market over a ten year period.
According to the latest RisCura-SAVCA South African Private Equity Performance Report, the 18.1 percent ten-year return from private equity outperformed the 12.6 percent delivered by the FTSE/ JSE All Share Total Return Index (ALSI TRI) over the same period.
He points out that while South Africa continues to exhibit sluggish levels of growth, there are certain industries which are ripe with opportunity for private equity capital in 2017.
These for example include: renewable energy; food (there has been strong growth displayed by certain crops over the past four years; namely Canola at 33 percent, soft citrus 33 percent, and lemons percent, and macadamia nuts, where South Africa is now the world’s largest producer); and the film industry in the Western Cape.
“This film industry not only generates employment while earning foreign exchange, but international broadcast content also promotes and showcases the country – ultimately having a positive impact on tourism.
“Through its long value chain, the sector has created more than 35 000 jobs in the province over the past three years and continues to contribute favourably to the economy,” says Boynton.
In its Direct Investments business, OMAI has invested in many of the top private equity deals (by value) in South Africa, including: Pepkor, Life Healthcare, Actom, Idwala, Tourvest, Libstar, Shanduka and Primedia. It also manages a range of South African, African and internationally focused fund of funds.
Its fund of funds range invests in underlying private equity funds managed by reputable, independent private equity managers with proven track records and unique investment strategies.
In its third category of Alternative Investment, OMAI manages in excess of R12bn across a range of funds that provide investors with commercially acceptable returns while addressing the gaps in social infrastructure, primarily in affordable housing and quality education.
Its Housing Impact Fund finances ‘affordable’ homes for sale or rent and provides housing loans and rental accommodation for families and students, aiming to fill the gap between government-provided housing and those with access to home loans.