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Jimmy Moyaha: For those who may have missed some of the news that has been reported around the budget speech, the State of the Union address, and perhaps at this point in the year, the South African government at some point hopes to: It was. Conversations about the use of pension funds to invest in infrastructure development, etc. In fact, I had a conversation with the ANC's National Transformation Committee earlier this week centered around this very conversation.
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But that's not why we're having this conversation. This conversation comes as Ninety One has launched an infrastructure fund. They identified that the problems that you and I continue to face in South Africa from a logistics and infrastructure perspective are problems that need to be addressed.
We have explained this in detail, but let's take a look at why this fund was launched now and what it is. To that end, I'm joined by NinetyOne's managing director of emerging markets alternative credit, Alistair Herbertson, on the phone to take a look at this fund and try to figure out what we can make sense of here.
Good evening, Alistair. Thank you very much for your time. Let's start with the reason for launching the fund and the mission assigned to the fund.
Alastair Herbertson: absolutely. We have been considering starting a fund for years. In fact, we've been running the fund for him for 18 months in the pilot phase, and I think it was convenient timing, or lucky timing. However, we have remained focused on supporting economic recovery through focused infrastructure investment.
This began with amendments to Article 28, which emphasized the government's desire for the long-term savings industry to invest in the economy, and thus in the infrastructure that supports the economy. So it's a fortuitous timing.
But this is something we've been working very hard on for months, and actually years at this point.
Jimmy Moyaha: Alastair, you mentioned the amendments to regulation 28, and clearly the amendments were made for infrastructure allocation by pension funds. From an investment perspective, could you tell us a little more about the strategic benefits that the fund you're launching brings to this type of allocation?
Alastair Herbertson: Well, the fund is actually structured around providing investors with an economic return, or investment return, commensurate with the market's expected risk/reward. But it focuses on the use of funds and how those funds are applied to revitalize the economy.
Since this is an infrastructure fund, it is clear that it primarily qualifies as an infrastructure asset pursuant to Regulation 28, but of course there is still uncertainty as to how Regulation 28 will be interpreted in the market.
However, we believe that the majority of our investments will be in qualified assets.
Jimmy Moyaha: Mr. Alistair, you said that how the funds are used is important. I think that's where the question arises. When considering the projects and allocations to which funds will be allocated, are there criteria set beyond that infrastructure element? Are there specific types of sectors or industries where you would like to have infrastructure installed? I know there are some projects, and I'll get to those in a moment, but what are the criteria and allocation process for this fund?
Alastair Herbertson: We apply an agnostic approach to how capital builds infrastructure. Infrastructure itself is actually a hard physical asset, and we have to invest in infrastructure, whether it's state-owned companies, through private companies that are investing in infrastructure, whether it's through someone like MTN or something more bespoke for a business. However, there is no objection to providing loans through government agencies. project finance, [independent power producer] IPP type transaction.
Read: Should you include infrastructure in your investment portfolio?
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Jimmy Moyaha: Alastair, some of the funds and investment projects that you're looking at that you've already started putting money into are currently invested in things like Sanral and the South African Airports Company. Can you tell us a little bit about the investments you're currently making and whether the timelines for those investments are the same? Is it varied? I understand that this is an open-ended fund. This gives you a little more flexibility, and it gives investors the flexibility to participate in a little more long-term projects. So can you tell us a little bit about what you're currently investing in?
Alastair Herbertson: We currently have approximately 40 counterparties representing a reasonably diverse mix of sectors. Although it is not classified by infrastructure sector such as water or electricity, it is classified quite broadly. There are agencies such as TCTA [Trans Caledon Tunnel Authority]will provide the infrastructure and transport raw water to the Vaal River as one of its major projects.
But they have various other projects that we are also investing in. We look to partners like Rand Water, who purify water and deliver it to municipalities. We also look at municipalities, the main providers of large-scale infrastructure in residential areas.
From start to finish, this whole thing is very good. We will focus on the roads and power sectors. As such, we have a reasonably diversified portfolio and an appropriate mix of counterparties.
Jimmy Moyaha: Alastair, where is the infrastructure fund going? Not only from an investment perspective, but also from a perspective of making sure there are more funds of this type in the industry? As you mentioned, the purpose and goal of launching such a fund is to improve infrastructure within South Africa and, in turn, grow the South African economy. Where do we go from here as asset managers, investors and South Africans to bring more money to the party?
Alastair Herbertson: We believe this fund represents a considered approach to focusing investment capital where it is needed and brings a wealth of experience gained from nearly 20 years of infrastructure investing in emerging markets. In fact, much of our experience comes from investing in Africa, Asia and other emerging markets. But I think it's really great to be able to focus on finding solutions for South Africa and bring global franchising experience.
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There are many opportunities in the market. We are seeing a number of investment opportunities that are parallel to us or support what we are trying to achieve. But I think as the traction increases more and more and the liquidity starts to increase, it will become easier and easier to create new and interesting investment solutions in this space.
Jimmy Moyaha: New and interesting investment solutions – this is how we change South Africa. This is how we continue to improve our infrastructure and improve our growth prospects. It's good to see an asset manager of Ninety-One's size willing to take the lead.
Leave it at that. Alastair, thank you so much for sharing these insights and a little more about the new fund you've launched.
Alistair Herbertson, Managing Director of Emerging Markets Alternative Credit at Ninety One, also joined me to discuss the firm's latest infrastructure fund.