2020 BOLD MOVES African Emergence - Sanne Group
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SANNEGROUP.COM
Issue 20 | March 2020
2020 BOLD MOVES
African Emergence
> South Africa’s growth outlook for 2020
> Mezzanine debt – the overlooked asset class
> Securitisation in Africa
> New classification standard for hedge funds
> Private equity firms continue targeting South Africa, new
opportunities and trends for 2020 and beyond
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Welcome to our 20th issue of Connect, bold moves bringing with it significant opportunities in the
SANNE’s regular, technical bulletin for fund coming decade is, renewable energy projects.
managers, their intermediaries and
Given the opportunities present in Africa, this edition of
investors.
SANNE Connect invited industry leaders to share their
Leading the way thoughts on Africa and the way forward.
Africa is showing great potential with the expectation for
Africa edition – our experts:
growth across the continent to be 3.9% in 2020 and 4.1% in
2021 with economic progress continuing to outperform that > Erik Nel, Chief Investment Officer at Terebinth Capital
of other regions. Bringing home the Webb Ellis Cup last year
> Adam Bulkin, Head: Manager Research at Sanlam
indeed brought us good fortune as Africa is destined to be
Investments: Multi-Manager
home to seven of the world’s ten fastest-growing economies
over the next five years. > Ryan van Breda, Portfolio Manager at Ngwedi Investment
Managers
Markets upbeat in 2020, but are storm clouds gathering?
> Karlien de Bruin, Head of SANNE ManCo
Having just come out of Cape Town’s ‘Day Zero’ situation, I
for one am always optimistic when the storm clouds gather. > Michael Denenga, Partner and Private Equity Specialist at
Fundamentals are improving with a gradual shift from private Webber Wentzel
consumption toward investment and exports. Achieving Enjoy the read!
sustainable development goals remain key and will shape
policy priorities for African Governments. Tangible
achievements in health and education have been noted,
however, service delivery and infrastructure have lagged, Graeme Rate
primarily due to funding gaps which is presenting new Country Head – South Africa and Malta
opportunities for long-term investors. One sector making graeme.rate@sannegroup.com
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KEY TOPICS
> Could we face another recession?
> What do rating agencies predict for
South Africa?
> Are emerging markets at risk of
running large bills?
South Africa’s growth outlook
Global expectations for 2019 were that trade tensions will It’s not all doom and gloom
ease, the global economy will pick up and that the US dollar
In South Africa, 2019 looked a little different. Adverse
will weaken. In reality, 2019 was characterised by a tug of war
macro news headlines hardly impacted markets. Negative
between substantial geopolitical drags and global monetary
rating outlook changes, a very disappointing mid-term
policy easing.
budget policy statement (MTBPS), load shedding,
After eight uninterrupted interest rate hikes by the Fed and crumbling SOEs and infrastructure, service delivery
markets pricing a further four hikes for 2019, a sharp selloff in protests, policy uncertainty, political infighting, and
December 2018 led to major Fed and market capitulation in bailouts and stagnation could not prevent the All Share
January 2019. Despite this reversal, a third slowdown of the Index of returning 12%, Implats almost tripling in value,
growth momentum took hold mid-year, once again creating Sibanye Gold more than doubling in value and Amplats
concerns about the timing and cause of the next recession. growing in excess of 150%. Not to be outdone, the All-Bond
Ironically, despite all these concerns, almost every asset class Index returned an impressive 10.3%.
delivered good returns in 2019.
US-China trade war vs Brexit
We expect that the two major political headaches that
Erik Nel
dominated most of 2019 – the US-China trade war and Brexit –
Chief Investment Officer
will have less impact in 2020. Now the question is whether
at Terebinth Capital
proactive global stimulus will result in growth stabilising at
erik.nel@terebinthcapital.com
current levels and potentially rebound, or whether ongoing
political concerns and the more recent arrival of the Covid-19
virus can bring an end to one of the longest economic
expansions in history.
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National Treasury recently acknowledged investors’ Keeping the rating agencies at bay
nervousness when it commented:
An environment of slowing growth and falling inflation
should usually provide for easy decisions around
monetary stimulus. Yet, to date, the South African
“National Treasury is alive to the great
Reserve Bank (SARB) has been reluctant to cut interest
anticipation for the 2020 Budget Speech
rates. A much lower policy rate seems dependent on
where we are expected to outline details
confirmation of tougher fiscal measures and policy
around fiscal consolidation measures
implementation. Fixed income managers will need to
particularly relating to Eskom and the Wage
appreciate both the nuance of monetary policy and the
Bill. Relevant Government departments will
implications of better or worse fiscal conditions in
be working very hard in the coming weeks to
2020.
meet these expectations where possible.
Again, Government would welcome all If the Government and key stakeholders adopt the
support available to move us forward.” resolutions and savings proposed in the MTBPS and
National Treasury’s economic transformation plan, then
a Moody’s rating downgrade can be averted. The
The IMF highlighted potential challenges the Treasury could President’s 2020 State of the Nation address and the
face: National Budget release were key inputs in Moody’s
pending rating decision, as it reflects the extent of the
Government’s commitment to fiscal consolidation and
“A more decisive approach to reform is implementation of reforms outlined in National
urgently needed. Impediments to growth Treasury’s growth paper.
must be removed, vulnerabilities addressed,
and policy buffers rebuilt. Expediting At present, consensus expectations are firmly biased
structural reform implementation is the only towards a Moody’s downgrade in 2020. Markets also
way to sustainably boost private investment seem to be more aware of further downgrades (deeper
and inclusion.” into sub-investment grade) by S&P and Fitch and the
impact this could have on funding costs and growth
risks to the economy.
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The risks are very real The role of hedge funds in building a volatility-
proof portfolio
While investors are aware of Eskom, budgets, rating
agencies, global index rebalancing, elections, We have suggested for some time that investors start
impeachments, populist tendencies, unrest and geopolitics building volatility-proof portfolios. Volatility has been
in general, we need to understand that a spread of more constrained by the proliferation of some investment
than 800bp over US Treasuries, 600bp over South African strategies, but as market expectations adjust,
inflation-linked bonds and a very attractive spread over unexpected volatility spikes are set to become more
cash, nominal Government bonds are hard to pass over. The frequent. To volatility-proof portfolios, investors should
caveat is that Government turns the fiscal ship around. A consider liquid alternative strategies that offer low
further increase in bond issuance or a sovereign rating correlations to traditional asset classes. Hedge fund
downgrade will lead to even more attractive yields on offer. managers with a proven ability to manage volatile
markets, protect the downside and generate
While proactive global stimulus in 2019 appeared to lower
incremental alpha are well placed to provide solutions
recession risks coming into 2020, global impact of the Covid-
in this regard.
19 virus, the upcoming US election, the rise of
deglobalisation and a mature credit cycle with rising liquidity
concerns once again pose risks. “As the Warren Buffet saying goes, predicting
rain doesn’t count, building arks does.”
A major theme to track in 2020 is the anti-establishment/
populist wave that continues to sweep the world, aided and
fanned by social media. Governments are increasingly Risk managers understand that markets face multiple
coming under extreme pressure from populations frustrated outcomes. Tactical, as well as fundamental awareness
with economic inequality, disenfranchisement, corruption will be more important in 2020. Alongside alpha
and fiscal austerity. generation, a reputable manager’s arsenal in 2020 will
have to include strategies that can benefit from positive
A dominant question on the election front is how the US
carry conditions and matching beta when required,
voting will impact the dollar and broader markets.
while being able to manage downside risks as they
Another concern is the explosion in debt during the post- prevail.
crisis period, resulting from falling inflation and record low,
sometimes negative, interest rates. A material weakening in
currencies, and a subsequent rise in inflation, could trigger a
major sell-off in developed market interest rates and
attendant crises in countries that run large current account
and/or budget deficits. Many of the countries that fall into
these categories are emerging markets and are at risk of
running up large bills to address the global climate crisis.
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KEY TOPICS
> Is there appetite for mezzanine
debt in Africa?
> What are the cash distribution
expectations?
Mezzanine debt
The overlooked asset class
An asset class within the alternatives category which Interest payments are usually linked to the Johannesburg
does not seem to attract the same attention as others, Interbank Average Rate (JIBAR), and split between cash
particularly in Africa, is mezzanine debt. There are payments and payment in kind debt, which is payable in
relatively few mezzanine debt managers, and this cash if there is sufficient surplus to do so, or rolled up and
could be ascribed to a lack of knowledge and demand payable at the end of the loan term.
from the institutions which would be the natural
investors in this asset class. The equity participation is by way of a preference share,
warrant or similar type of contractual obligation. The value
The nature of mezzanine debt of the equity is usually determined by using a pre-agreed
valuation methodology. Thus, unlike private equity,
Mezzanine debt is a hybrid asset class with both fixed mezzanine debt investments have a definitive exit date,
income and equity-like characteristics. It targets valuation approach and more definitive cash distribution
equity-like returns, with debt-like risk. expectation.
When the mezzanine debt fund extends a loan to a
borrower, the borrower is obliged to repay the
principal amount of the loan plus interest, but in
addition, the fund becomes entitled to participate, to a Adam Bulkin
certain extent, in the equity of the borrower. The debt-
Head: Manager Research
like returns are achieved through the interest payable Sanlam Investments: Multi-Manager
on subordinated debt owed by the borrowing
adambu@sanlaminvestments.com
company, to which contractual obligations on the part
of the borrowing company are attached.
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Mezzanine debt’s capital
structures and its return may
be illustrated as follows:
Corporate All-in Exposure Comprehensive Alignment Valuation Board
Covenants
Structure Return to Upside Security of Interest Uncertainty Involvement
Equity
>25% 100% No No Yes Yes, at Exit Yes
20%
No, exit
15% - 25%
Mezzanine Up to 25% valuation
(>Jibar + Always (at least Yes
Debt of equity Comprehensive Yes multiple is
6.00% 2nd ranking) (observer)
30% upside predetermined
plus equity)
upfront
9.5% - 13%
Senior Debt Always
(Jibar + 250 0% Comprehensive No Not Applicable No
50% (1st ranking)
– 550bps)
An example of the return components of mezzanine debt is as follows:
Observations:
Original
Investment Yr1 Yr2 Yr3 Yr4 Yr5 > Contractual interest, enforceable downside protection,
and equity related upside
16.4%IRR
Equity Kicker = R11,75m > The equity kicker is typically structured as a self
PIK interest at exit = R6, 41m liquidating instrument
Final cash interest income = R2,75m
> Unlike private equity, mezzanine investments have
Interest Principal repayment = R32m
Fee Income a definitive exit date
R0,32m R2,37m R2,47m R2,56m R2,66m
Aggregate: Cash Flows R’000 Pot of Flows
Principle Investment R32m
Value of Equity Kicker 11,756 38%
PIK Interest at exit 6,407 21%
Original Investment Fee Cash Pay Interest PIK Interest Paid Equity Cash Interest 12,814 41%
Total Non-Principal Cash Flows 30,977 100%
60% - 70% of investment returns are contractual
Source: Ashburton Investments
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Various uses of mezzanine debt > Leverage recapitalisations
Private equity investors can improve their returns on existing
Mezzanine debt fills a gap between senior and equity
investments by using mezzanine debt to refinance and re-
funding. Traditionally, the major banks and life
leverage existing debt structures, thereby providing the
insurance companies played a key role in providing this
opportunity for early IRR-enhancing returns on capital.
type of capital. Since the global financial crisis and the
implementation of Basel Regulations, such entities > Leverage or management buy-outs
have reduced this type of debt financing while demand Management teams and private equity investors can use
continues to build in leverage buyout, BEE and mezzanine debt to enhance their returns on new
infrastructure financing transactions. There is investments by reducing the amount of equity they need for
therefore a demand for mezzanine debt, but it is in a given opportunity.
limited supply, which presents attractive opportunities
> Refinancing of secondary BEE transactions
for those willing to provide such capital.
This is where an existing BEE investment has reached
In more specific detail, there are demands for maturity and the corporate entity is required to enter into a
mezzanine debt in the following types of new BEE transaction. According to Intellidex, as at
transactions in Africa. 1 January 2015, on the Johannesburg Stock Exchange (JSE)
alone, there were outstanding BEE transactions amounting
> Entrepreneur-partnering transactions
to R209.2 billion. Live deals had an average duration of 6.8
These are transactions in which capital is provided in
years as at 1 January 2015, indicating that a large number of
support of established entrepreneurs in profitable
these transactions are close to maturity. Given that banks
businesses that are positioned to take advantage of
have moved away from funding these transactions due to
organic growth and acquisition opportunities, including
the implementation of Basel III, this refinancing activity
platforms for build-up strategies. Mezzanine funding is
provides a significant opportunity for mezzanine debt.
more suitable for entrepreneurs that are not yet ready
to exit or dilute their equity due to growth prospects but > Energy transactions, both primary and secondary provide
would like to have a partner with capital and the ability attractive risk return profile opportunities
to assist with funding that growth strategy. Mezzanine financing can help strengthen a project’s equity
profile because of its flexibility compared to senior debt
> BEE transactions
finance. Mezzanine finance is also attractive as it can lower
This has been one of the growth drivers of mergers &
the cost of financing a project compared to pure equity
acquisitions and private equity investments in South
financing. Mezzanine financing into infrastructure is
Africa and this trend is expected to continue. Working
attractive due to the stability of infrastructure assets through
alongside BEE investors, mezzanine debt provides
changing macro and credit conditions.
funding for BEE transactions.
> Growth capital
Mezzanine debt is less dilutive funding compared to
traditional sources of debt or equity capital (i.e. private
equity). This strategy can enable shareholders to
postpone raising further dilutive equity, achieving much
stronger valuations when they elect to exit later.
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Rationale for investing in mezzanine debt
From a global perspective, mezzanine debt presents a highly attractive risk return profile. According to Ashburton
Investments, in 2017 48% of international investors believed it offered the best risk-return profile in the private debt space
and this was supported by actual performance, as illustrated below:
According to research by René Biner and Dr. Michael Studer of Partners Group, in a paper titled ‘Mezzanine Investments:
Stability through the storm’, mezzanine debt in Europe outperformed nearly all asset classes during the financial market crisis
from 2007 to 2009. The peak to trough drawdown of the asset class during the crisis was 11%, compared to many other asset
classes that were in the 50-60% range, highlighting the relative stability of mezzanine loans in the crisis. With 50% recovery
rates given default, a mezzanine lender can realise default rates on over half its portfolio and still not experience a loss of
principal. This is due to high historical recovery rates and high contractual coupon payments that generate significant interim
cash flows. This is illustrated below:
Source: Partners Group
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Based on their observations through the 2007 to 2009 period, Biner and Studer concluded that, “on a risk-adjusted basis,
mezzanine debt is one of the most attractive investments in the market. The primary characteristics which have enabled the
mezzanine debt asset class to achieve this attractive profile include: high contractual yields, relatively low default rates, high
recovery rates given default, favourable ownership dynamics, and greater control of protective legal documentation.”
Further evidence of the attractiveness of mezzanine debt is provided in the October 2018 paper titled Mezzanine Debt by
Todd Silverman, Mark Watson, John Haggerty and Frank Benham of Meketa Investment Group.
They provide the following risk and return metrics versus other US debt asset classes (reported in US dollars).
Mezzanine Performance vs. Other Private Debt (1997-2017):
Mezzanine Broadly Syndicated High-Yield Middle Market
Debt Loans Bonds Loans
Annualised Return 9.08% 4.90% 6.74% 6.24%
Standard Deviation 6.99% 8.50% 10.12% 6.98%
Sharp Ratio 1.02 0.35 0.47 0.61
Mezzanine Debt Correlations -- 0.46 0.44 0.45
The next growth wave is coming
Mezzanine debt is a valid and important component of a private market portfolio, with an attractive risk and return profile
that provides potential returns close to those offered by private equity, but in a more predictable and lower risk manner, with
a reduced “J-curve”, regular cash pay distributions, strong downside protection and self-liquidating equity-linked bonuses
which are redeemed at maturity at a predetermined valuation methodology.
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KEYTOPICS
KEY TOPICS
> > What sectorsincreasing?
Is demand need developing?
Securitisation in Whatnew
> > What areavenues
the regulator’s
to explore.
views on securitisation?
> Ensuring digital platforms
South Africa What are
> support newthe liquidity risks?
services.
Securitisation is an off-balance sheet funding mechanism The regulations specify certain conditions for the disposal of
whereby cash-flow producing assets are pooled together and assets from the originator to the issuer SPV. In other words,
sold into a special purpose vehicle (SPV), a bankruptcy remove ensuring that a true sale of assets take place, including
company. The SPV will fund the purchase of these cash-flow conditions in relation to credit enhancement facilities and
producing assets by issuing various tranches of rated notes (AAA liquidity facilities. In addition, the regulation also provides
all the way to B), to institutional investors in capital markets. requirements on the ownership and control of the issuing
The nominal value of the notes, as well as the coupon rate of entity, being the SPV.
the notes, are paid from the underlying cash-flows from the
Asset classes
assets in terms of an agreed cash-flow waterfall.
The most dominant asset class remain residential mortgage-
Regulation of securitisation
backed home loans, but the local market also includes
The legal framework for securitisations is currently governed by instalment leases, equipment leases, commercial
regulations issued under the Banks Act of 1990 published in mortgages, vehicle asset financing and consumable
Government Notice 2, Government Gazette 30628 of 1 January receivables. Generally, the securitisations in our market are
2008. These regulations exempt an issuer SPV from the true-sale physical transactions and not synthetic
obligation to register as a bank, provided that the transaction is transactions.
implemented in accordance with these regulations.
Synthetic transactions gained great traction in the global
markets in 2007 (where they included mortgages on sub-
prime loans). These securitisation vehicles did not own the
underlying physical assets but entered into a series of credit
default swaps (CDS) with the originator of the underlying
asset and repacked a pool of these CDS to investors. This
was generally known as a CDO.
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It’s good to see that the South African regulator is shying away We believe that liquidity will over time improve as more
from approving synthetic securitisations, which does give investors come to market, but the main reason for the
confidence to the South African market as a whole. The focus in current limited liquidity is because the originating banks are
South Africa is on securitisation as a funding mechanism rather not allowed to make a market in its self-securitised assets
than capital relief. under the current South African regulations. We do find this
perplexing given that for liquidity purposes, self-secured
Pricing and performance
assets are posted as collateral to the South African Reserve
Over the past few years the South African listed credit market Bank (SARB) for drawing down under the committed
continued to see credit spreads grinding lower. Five years ago, liquidity facility (CLF).
5-year senior floating bank bonds priced at around 3 million
The CLF was created to offer the local banking industry the
Jibar +1.60%, whereas now 9-year senior floating bank bonds
ability to borrow money from the SARB to meet the
price at around the same level. Securitisations are starting to
requirements of the Basel III Liquidity Coverage Ratio given
show significant spread compression, but currently offer a
the shortage of high-quality liquid assets.
relative yield pickup - relative to other good quality credits
available in the market, where we believe the underlying The Association of Savings and Investment of South Africa’s
collateral to be of the same quality due to an illiquidity Fixed Income Standing Committee is currently in discussions
premium. with the Prudential Regulatory Authority regarding
amendments to the regulations which will allow originating
The performance of the underlying pool of assets held in the
banks to retain notes for the purposes of making a market
securitisation vehicles has been good over many credit cycles,
without compromising legal true sale. Over time this will
with no losses to noteholders recorded in the South African
increase liquidity which will attract a greater pool of
market.
investors to the market.
In the current market, liquidity is thin but is improving as more
investors consider the asset class. We believe that this is one of
the reasons why investors price the notes higher, not
necessarily for their inherent risk but for their liquidity. Ryan van Breda
Portfolio Manager
Ngwedi Investment Managers
ryan@ngwedi.com
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KEYTOPICS
KEY TOPICS
> > What
Whatsectors
are theneed
newdeveloping?
classifications
> What new avenuesandto
impact on
explore.
managers?
> Ensuring digital platforms
> Is there any additional
support new services.
benefit?
ASISA Hedge Fund
Classifications
– positive move for the hedge
fund industry in South Africa
The hedge fund industry has grown substantially since the first Classification tiers for asset managers
hedge fund was established in 1949. The array of investment
strategies have now expanded to include traditional asset The ASISA Hedge Fund Classification Standard provides
classes, more esoteric strategies such as currency trading, four tiers of classification. The first tier splits hedge funds
derivatives (futures and options) on financial indices, into the type of portfolio, i.e. either Retail Hedge Funds or
commodities and even outliers like weather and funds trading in Qualified Investor Hedge Funds. This is the most
physical assets such as art and wine. fundamental split as it is aligned to the schemes that are
currently enacted in the legislation.
The number of operating hedge funds in the market have grown
significantly, which makes it hard for investors to compare, The second tier classifies hedge funds according to their
analyse and select the appropriate hedge fund or combination geographic exposure. This geographic exposure classifies
of hedge funds to execute their investment strategy, hence the funds as South African, worldwide, global or regional.
need for a standardised classification methodology. The third tier classifies hedge funds according to the
Importance for investors investment strategy of the portfolio, represented by the
asset class from which returns are predominantly
It is important for investors to know what assets a fund is generated.
investing in to generate its returns and the risk profile taken to
achieve these returns, prior to making their investment These have been classified into long short equity, fixed
decisions. income, multi-strategy, and other, i.e. funds that invest in
other assets such as property, commodity or other
ASISA (Association for Savings and Investments South Africa), physical assets.
the industry membership body that represent the interests of
the South African investment community, recently released a The fourth tier only applies to the Long Short Equity
Hedge Fund Classification Standard. The aim of the standard is Hedge Fund classification as this asset class covers a wide
to classify all hedge funds into different categories to make it variety of equity driven funds. The fourth tier expands the
easier for investors to assess and compare funds and select Long Short Equity class further into long bias equity hedge
hedge funds appropriate for their risk profiles and investment funds, market neutral hedge funds and other equity.
appetite. The standard came into effect on 1 January 2020. Hedge fund managers are now obliged to include this
fund classification on their fund fact sheets.
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Benefits for the industry
With these classifications as a backbone, investors can now
compare and analyse hedge funds in each category and match
their own risk appetite and objectives with that of the hedge
fund universe, much easier.
In addition, ASISA will for the first time be able collect and
compare its own data on the hedge fund industry in South
Africa. This in itself will be a huge benefit for the asset
management industry in South Africa, as the industry will now
have access to local statistics and trends to use in their
investment decision making.
SANNE’s management company is a leading provider of hosted
ManCo services to the long and hedge fund industries. Our team Karlien De Bruin
is working with hedge fund managers to implement the new
Head of ManCo, SANNE
classification standard into their investment reporting
processes. karlien.debruin@sannegroup.com
Congratulations to our clients
2020 Hedge News Africa Award Winners*
Long Short Equity Fund of the Year Multi Strategy Fund of the Year
Anchor Accelerator SNN QI Hedge Fund Fairtree Wild Fig Multi Strategy SNN QI Hedge Fund
Market Neutral and Quantitative Fund of the Year Ten-year Performance – Single Manager
X-Chequer SNN Diplo QI Hedge Fund Polar Star SNN QI Hedge Fund
Five-year Performance – Single Manager (Joint Award) Fund of the Year 2019
Acumen AcuityOne SNN Retail Hedge Fund Fairtree Assegai Equity L/S SNN QI Hedge Fund
Fairtree Assegai Equity L/S SNN QI Hedge Fund
Pan Africa Fund of the Year
Gondo Visio Metsi Fund
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KEY TOPICS
KEY TOPICS
> What are the trends and
opportunities in private equity?
> Will Mauritius continue being a
favourite for offshore funds?
What is in store for private equity
in Africa?
With experts predicting that South Africa's economy will We will see increased opportunities for investors to
grow by less than 1% in 2020, this year is likely to be participate in general partner led re-structures and
challenging. Although economic challenges will have an secondary deals to orderly transfer "long in the tooth"
effect on private equity (PE), the industry will most likely assets to alternative investors or structures.
show resilience, following the continued upward trend
seen over the last decade. There is however, speculations This is further pronounced by the exit challenges that some
that market conditions may bring about new trends and managers have experienced in recent years. Secondary
opportunities. buyout (sales to other PE firms) remain the most common
exit mechanism and we do not anticipate an increase in
What is on the horizon for 2020 conversions to listed funds, due to the illiquidity and high
transaction costs associated with African exchanges and
For 2020, the expectation is that PE in Southern Africa will the fact that the recently listed vehicles have been trading
once again perform admirably. Internationally, PE has at a significant discount to NAV. We can expect more exit
remained buoyant despite all signs that we are at the top opportunities from trade partners and selling to strategic
of the economic cycle. Globally, fundraising activity has partners including other PE managers.
remained high with almost US $2 trillion in global PE
capital available for investment, with large amounts of > Increased flexibility, innovation and transparency
these funds earmarked for emerging markets, including To attract capital and larger ticket sizes, we may see PE
sub-Saharan Africa (SSA). fund managers expanding their product ranges across
New trends and opportunities different asset classes and strategies in order to grow their
fee base, consolidate costs and minimise risks associated
Mitigating the effects of a strained local economy, we will with a single asset class or market.
likely witness new trends and opportunities for PE in 2020.
These expectations include the following: New product lines may well encompass private debt funds
which continue to grow in number each year given the lack
> Increased exit opportunities of available credit for small to mid-sized companies. In
Following political uncertainty and currency elasticity, keeping with a theme of flexibility, we also expect to see
some SSA fund managers have found themselves holding changes or adjustments in fund structuring or fund
more assets at the end of the fund life than what they documentation.
anticipated.
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This is partly as a result of the Abraaj collapse which led In 2019, guidelines were put in place for defining and
the International Limited Partners Association (ILPA) to stress testing impact investing with the International
spearhead several investor friendly boilerplate provisions. Finance Corporation developing a set of nine operating
principles for impact management. The greater clarity
Transparency will also be key as investors push for more
provided by the guidelines should encourage asset
disclosure, enhanced due diligence, access to financial
managers and investors alike.
information and early step-in rights. This increased focus
on stewardship will provide opportunities for fund Fund domicile decisions
administrators to provide independent, third-party
Mauritius will most likely continue to be a favourite
oversight for fund managers that traditionally preferred to
jurisdiction for establishing offshore Africa focused funds.
do so in-house. More deal-by-deal structures may emerge
Although Mauritius received some criticism in 2018 from
as some managers will consider foregoing management
some quarters resulting in DFIs, increasing pressure on
fees for more frequent carried interest. We may also see a
managers to ensure that their operations in Mauritius had
hybrid of permanent capital and traditional funds as
substance; the OECD, the Dutch list and the European
managers look for ways to secure more time for value
Union have since then all confirmed that Mauritius is not a
creation in African markets while at the same time
harmful tax jurisdiction. Enhanced substance requirements
maintaining alignment in terms of fees and performance.
have also given DFIs greater confidence that managers that
> Impact investing choose Mauritius do so for commercial, rather than tax
reasons. We are, however, likely to see an increase in on-
The past two years have also shown that impact investing
shore fund structuring particularly in SA as more and more
does not negate profitability. Impact investing cuts across
DFIs take comfort in investing directly into SA for South
various asset classes and will provide managers with
African and Africa focused funds.
optionality in their quest to expand their product ranges.
According to the Africa Impact Report 2019, impact
investing has concentrated on energy and financial services
in Africa. The Public Investment Corporation and Impact
Investing South Africa will be looking to encourage
investment in other areas such as manufacturing and social
Michael Denenga
infrastructure. The increasing demand for impact investing Partner and Private Equity Specialist
at Webber Wentzel
will open new commercial avenues for fund managers in
renewable energy, health, affordable housing and food michael.denenga@webberwentzel.com
and security funds, amongst others.
16 / 18 MAKING THE DIFFERENCE FOR OUR CLIENTSSANNEGROUP.COM
Global alternative asset and
Graeme Rate
corporate administration done Country Head – South Africa and Malta
differently t. +27 (0) 21 402 1600
e. graeme.rate@sannegroup.com
SANNE has undertaken to engage with all
of the markets in which it operates to
share knowledge, collaborate with peers
and hear from industry leaders as to their
thoughts on the key issues and topics Karlien De Bruin
affecting the industry and its practitioners. Head of Manco
t. +27 (0) 21 202 8263
Established for over 30 years and listed on the Main e. karlien.debruin@sannegroup.com
Market of the London Stock Exchange, SANNE has
more than 1,800 employees worldwide and has in
excess of £250 billion assets under administration.
Our network of offices provide global managers with
highly skilled and director-led teams of asset class
specialists.
Werner Gerber
Senior Client Relationship Manager
t. +27 (0) 21 402 8289
e. werner.gerber@sannegroup.com
“We take great pride in understanding the
unique needs of each individual client to
create tailored business solutions.”
GRAEME RATE Should you wish to find out more about our
services and operations please speak to us, we
would be delighted to hear from you.
AMERICAS EMEA ASIA-PACIFIC
BVI* Belgrade London Hong Kong
Cayman Islands Cape Town Luxembourg Japan
New York Dubai* Madrid Mumbai
San Diego Dublin Malta Shanghai More than 1,800 FTSE 250 In excess of
Frankfurt* Mauritius Singapore people worldwide listed business £250bn AUA
*Affiliated partner Guernsey Netherlands Tokyo
Jersey Paris
17 / 18 MAKING THE DIFFERENCE FOR OUR CLIENTSSANNEGROUP.COM
To find out more about SANNE, please email Graeme Rate, our Country Head,
South Africa and Malta, graeme.rate@sannegroup.com or alternatively visit us
online, sannegroup.com
*Disclaimer:
Collective Investment Schemes are generally medium to long-term investments. The value of participatory interests (units) may
go down as well as up. Past performance is not necessarily a guide to future performance. Collective investments are traded at
ruling prices and can engage in scrip lending and borrowing. The collective investment scheme may borrow up to 10% of the
market value of the portfolio to bridge insufficient liquidity. A schedule of fees, charges and maximum commissions, as well as
detailed description of how performance fees are calculated and applied, is available on request from SanneManagement
Company (RF) (Pty) Ltd (“the Manager”). The Manager does not provide any guarantee in respect to the capital or the return of
the portfolio. The Manager may close the portfolio to new investors in order to manage it efficiently according to its mandate.
Additional information, including, Minimum Disclosure Document (“MDD”), as well as other information relating to the basis on
which the Manager undertakes to repurchase participatory interests offered to it, and the basis on which selling and repurchase
prices will be calculated, is available, free of charge, on request from the Manager. The Manager is registered and approved by
the Financial Sector Conduct Authority (“the Authority”) under the Collective Investment Schemes Control Act No. 45 of 2002
(“CISCA”). The Manager retains full legal responsibility for the portfolio.The full details and basis of the award can be obtained
from the Manager.
EDITOR: Sivani Pillay – Head of Communications
DESIGN: Kieran Blake – Marketing & Corporate Communications Administrator
Information on Sanne and its regulators can be accessed via sannegroup.com
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