Pensions hotshot looks to water projects for company’s rainmakers
It was started as Gaia Energy in 2012 by Leon de Wit and Botha Schabort. In 2014, when I was busy with my exit from public service, we engaged with the aim of creating an institution that would play a role in infrastructure funding. The partnership resulted in the creation of Gaia Infrastructure Partners, which is the management company for Gaia Infrastructure Capital, the listed entity.
When I was at the Government Employees Pension Fund in 2009, I advised the board to look more closely at their investments strategy, especially investments that were resilient to economic cycles. The board gave me the mandate to research a developmental investment framework which consisted of investments in economic infrastructure, social infrastructure, the greening of the economy, and enterprise development and job creation.
That’s what led to the PIC [Public Investment Corporation] launching a number of funds and explains why the PIC is the largest investor in renewable energy.
Why infrastructure as an asset class was important to the GEPF, and is also important to all other pension funds, is that a pension fund ought to be a longterm investor. You’ve got a young person getting into their first job and potentially working for 40 years, so you’ve got to have a 40-year investment view — so infrastructure is a close-toperfect asset class for pensionfund investing.
Pension funds have not taken it up in a big way mainly because of the problem of liquidity: in South Africa we have a low savings rate so funds face the challenge of not being able to take a long-term view because
BIG PLANS: John Oliphant has become the JSE’s youngest CEO they might need to be able to service withdrawals [if people switch jobs]. That’s why it was important to create a liquid instrument and why we decided to list Gaia Infrastructure Capital to say, you can participate in long-term projects, but have the benefit of listed markets.
The renewable energy programme has unlocked R162-billion of private-sector capital, and that’s mostly development finance institutions. The Industrial Development Corporation is quite big, the Development Bank of Southern Africa and the PIC are significant there. But those development finance institutions would not typically be long-term holders of those assets — they would want to recycle capital, and that’s why we think there’s so much opportunity in the market.
And let’s look at the pressures government faces: under-investment in energy has caught up with us; if you look at water infrastructure, we think government can take advantage of a well-developed capital market to facilitate investment in water.
Prior to listing we’ve had an opportunity to build up our track record in an unlisted environment; we have consistently been able to deliver IRRs [internal rates of return] of north of CPI plus 6% and also we see ourselves as not only about capital growth, but about dividend yield.
If you look at the renewable energy programme, if you were to do the mathematics of it — the closest comparison for [our] asset class is inflation-linked bonds. Now you’ve got an offtake agreement with government and in between you’ve got technology risk. Inflation-linked bonds are currently trading at CPI plus 2%; now CPI plus 6% suggests a 4% risk premium on top.
The JSE needs to be applauded for SPACs. Take for example Gaia — we’ve got the skills to invest in infrastructure but we [didn’t] have the money: so how do you raise money? We’ve managed to successfully raise R551-million and we won’t be classified as a SPAC forever. Once we’ve acquired a viable asset, we then become a normal listed company.
We’ve set a target for ourselves to close a deal in less than 12 months.
The GEPF issue was unfortunate; I think there was a misunderstanding between myself and the previous board so it’s not an issue with the current board. From my side I’m actually quite grateful, because I wouldn’t be what I am today, had I not been given the opportunity to serve the GEPF. I’m only 33, I appreciate that I’ve served our country at the highest level.
Talevi is a BDTV presenter