As business confidence in South Africa falls to its lowest point since 1977, Sanlam Investments, which manages more than R400-billion on behalf of clients, has invested R2.5-billion of its own capital into three new funds designed to support South African companies negatively affected by the Covid-19 lockdown.

The R2.5-billion is seed capital and Sanlam hopes to raise another R4.5-billion from other institutional investors set on re-igniting economic growth.

The funds will focus on SMEs, mid-market and large corporates that are big employers in their own rights. The aim is to ensure that otherwise viable companies do not fail just because they are facing a cash-flow crisis. 

This is the second such initiative announced in as many weeks. Asset manager Ninety One announced a similar initiative in partnership with private equity firm Ethos. 

While a number of economic stimulus measures have been announced by the government, including debt relief for SMEs and some tax relief measures, this falls far short of what is needed. 

South Africa’s regulatory authorities have estimated that SA Inc could require a R100-billion capital injection if businesses are to be saved and the country’s productive capacity protected.

“South Africa entered the Covid-19-induced lockdown in the midst of a recession, which could deepen the economic impact relative to other countries,” says Nersan Naidoo, CE Sanlam Investments.

The economy is expected to contract by between 7% and 10%, depending on which economist you talk to, which could result in the loss of three to five million jobs, pushing the unemployment figure to close to 50%. “These numbers are frightening,” he says. 

The pressure to achieve the UN’s 17 sustainable development goals, which include reducing poverty and inequality, and managing climate change and environmental degradation, has been growing and is something that capital allocators have been becoming increasingly aware of in recent years.

The long-term savings industry is beginning to mobilise capital around sustainable goals — for instance, there is increasing investment in climate mitigating strategies. “A crisis creates alignment,” says Naidoo.

That said, significant funding gaps remain. 

“Companies need support because without it the jobless picture will get worse and as a country and society we will go backwards in terms of sustainability. It’s imperative from an investment perspective to do what we can to sustain jobs.” 

South Africa’s asset management industry doesn’t usually invest in distressed assets or businesses that are going through tough times, but the appetite to do so may be growing. 

“If we can prove to the broader investment community that one can make these investments without compromising investment returns you will see this gathering momentum.”

Thus Sanlam’s three funds will have different mandates, and different returns, in order to appeal to the broadest possible set of investors.

For instance, the senior debt fund, which will appeal to the more conservative investor, is expected to return the money market rate, technically known as the Johannesburg Interbank Rate or Jibar, plus 3%. 

The SME-focused fund should return Jibar plus 6%, while the private equity fund is targeting a return of 20% to 25%.

Investors can choose to allocate to each fund individually or invest in a blend of the three impact strategies.

“We are seeing that we, as the asset management industry, have a bigger role to play and we need to step up,” he says. DM/BM