Build it, and they will come

Financial Mail - - INVESTOR’S NOTEBOOK - @scranston by Stephen Cranston

It isn’t hard to make the case for greater in­sti­tu­tional in­vest­ment in in­fra­struc­ture. Apart from the wor­thy aim of cre­at­ing jobs and wealth, it also pro­vides un­cor­re­lated re­turns com­pared with the JSE and the sov­er­eign bond mar­ket. Some projects, such as re­new­able en­ergy, can pro­vide a pre­dictable in­come stream through their div­i­dends; oth­ers, such as schools, are still the pre­serve of ul­tra-long-term in­vestors such as life of­fices that can wait for a decade or more be­fore they get cash back.

But there are prac­ti­cal ob­sta­cles to in­vest­ing in in­fra­struc­ture for the ma­jor­ity of pen­sion funds, which are de­fined con­tri­bu­tion funds with daily priced ac­counts. Th­ese funds give mem­bers the choice of switch­ing port­fo­lios at a day’s no­tice.

Even some ex­ist­ing funds, such as the Fu­ture­growth In­fra­struc­ture Bond Fund, have lim­ited liq­uid­ity and give money back only af­ter an ex­ten­sive ne­go­ti­a­tion and then prob­a­bly stag­gered over sev­eral months.

The gov­ern­ment’s sug­ges­tion that pen­sion funds should in­vest di­rectly in in­fra­struc­ture projects would make the liq­uid­ity is­sue even worse. A fund would have to phys­i­cally sell out of a project to meet any with­drawals.

Last month’s Sus­tain­able In­fra­struc­ture De­vel­op­ment Sym­po­sium SA was a worth­while at­tempt by Pres­i­dent Cyril Ramaphosa, public works min­is­ter Pa­tri­cia de Lille and new in­fra­struc­ture tsar Kgosientso Ramok­gopa to show­case the projects avail­able to the pri­vate sec­tor.

But it was in­trigu­ing that the pri­vate sec­tor pan­el­lists were all fringe play­ers in the in­fra­struc­ture de­bate.

One was Syg­nia CEO Magda Wierzy­cka, whose core in­ter­est is pas­sive port­fo­lios and ex­change traded funds.

It will be dif­fi­cult to in­clude in­fra­struc­ture in one of th­ese wrap­pers, af­ter all.

And Nazmeera Moola of Ninety One, who is never dull, might have been a good choice to keep the au­di­ence awake in the post-lunch dis­cus­sion, but she has col­leagues who are far more knowl­edge­able about in­fra­struc­ture, such as Alastair Her­bert­son, who co­man­ages the Emerg­ing Africa In­fra­struc­ture Fund.

Fu­ture­growth is un­ques­tion­ably the pre­mier in­fra­struc­ture fund man­ager, yet it was not in­vited to take part, nor were key play­ers such as Old Mu­tual Al­ter­na­tive In­vest­ments, Stan­lib and San­lam.

Per­haps the ANC has not yet for­given Fu­ture­growth chief in­vest­ment of­fi­cer An­drew Can­ter for re­fus­ing to in­vest in a wide range of state-owned en­ter­prises (SOES) four years ago.

Of course nei­ther the state nor the pri­vate sec­tor has any money burn­ing a hole in its pocket right now.

That, how­ever, hasn’t stopped mut­ter­ings from ANC sec­re­tary-gen­eral Ace Ma­gashule about forc­ing pen­sion funds to in­vest more in in­fra­struc­ture.

But Can­ter says that if there are bank­able, well-con­sid­ered and well­man­aged projects, they will find fi­nance.

If, on the other hand, the term in­fra­struc­ture is used as a smoke­screen for forced in­vest­ment in clapped-out SOES, then a great deal of trust be­tween the gov­ern­ment and the pri­vate sec­tor will dis­ap­pear.

But we need to give Ramok­gopa a chance.

His of­fice aims to build the ca­pac­ity to run ma­jor projects that doesn’t ex­ist in the civil ser­vice right now.

So long as the process re­mains vol­un­tary and not com­pul­sory, it could be fruit­ful on both sides.

123Rf/dmitri Luchi­novich

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