The US International Aid Agency (USAid), has promised to inject $150m (more than R1bn) into enterprise development in South Africa through local investment management firm Cadiz Asset Management.
Unveiled yesterday the initiative will be run as a guarantee fund designed to attract mainstream investors, like pension funds, into the enterprise development space. The fund will be managed by a Cadiz subsidiary called Cadiz High Impact Fund.
The initiative was aimed at driving economic growth and job creation through the SME sector said US embassy’s deputy chief of mission‚ Virginia Palmer. “Private capital resources can drive the growth of entrepreneurs and SMEs‚”
The initiative links with calls, carried in the financial sector charter, for mainstream financial players to direct a portion of their funds towards the so-called socially responsible areas. The charter has unlocked some movement towards this but it has far from being enough as Cadiz Asset Management Evan Jones noted during the launch of the initiative yesterday.
Jones said although South Africa has quite a low savings rate it does have a very well developed retirement industry with assets under management of around R1,875 Trillion and closer to R3 Trillion when taking Life Assets backing retirement policies into account. “This substantial pool of assets can be seen as a major source of investment funding and could potentially fill the gap where existing traditional funders fail to meet the overwhelming need (for funding in non-listed enterprises).”
He added that recent changes to Regulation 28 provide an ideal regulatory springboard for the inculcation of socially responsible investments without neglecting the fiduciary duties.
He said the USAID partnership provides Investors with the prospect of making targeted investments into SMME’s and non-banked financial intermediaries with a key perceived risk mitigated by the US Government. “Internationally there is also a tremendous amount of capital which has been mobilised.”
“From an investor perspective (viewed through the eyes of a trustee) this guarantee provides them with an ideal opportunity. They can look to invest into an area of the market where substantial opportunity exists, actively participate in the social improvement of our society and ensure that they are taking into account the factors required of them in terms of Regulation 28 preamble”.
“From a national and regulatory perspective all indications are that unlisted investments which can deliver environmental, social or governance objectives are being provided a favourable platform. The real issue is now whether investors will see this as the opportunity that we believe it to be?”
Cadiz Asset Management CEO Frank Cadiz said the development is a culmination of 24 months long dialogue between the firm and the USAID.
He said the initiative will enable Cadiz to access pools of capital that to date were unavailable previously due to the perceived level of risk in this area of investing. “The fear of capital loss has been one of the factors limiting capital raising historically. The mitigation of this risk through the introduction of the US AID guarantee will explicitly remove one of the hurdles preventing capital allocation to this area”.