Since launching in 1995, the total composite assets of the Futuregrowth Infrastructure & Development Bond Fund (the fund) have grown to over R10bn.
The fund facilitates infrastructural, social, environmental, and economic developmental investments in southern Africa. Over 15 years, the fund on average has outperformed the JSE All Bond Index (the industry standard benchmark for bond funds) by more than 2%.
The fund has a mandate to invest in both listed assets (funding those entities tapping the capital markets via the JSE) and unlisted assets where Futuregrowth uses both its strong origination process as well as various partnerships to source transactions.
State-owned enterprises (SOEs) raise some of their funding requirements in the form of listed bonds on the JSE. The more complex project-specific funding is usually funded in the unlisted space by the banks as well as specialist asset managers where a higher degree of skill has to be applied in order to assess and quantify the risks involved.
The Government through its National Infrastructure Plan has created very ambitious targets for infrastructure spend over the next few decades, which needs private sector involvement.
Portfolio Manager Jason Lightfoot said that Government recognises that it cannot fund infrastructure initiatives entirely by itself and that the idea would be to bring the private sector on board.
“The challenge is that you have to make the offering attractive to the private sector both through risk mitigation and adequate compensation for the risk taken,” said Lightfoot.
According to PricewaterhouseCoopers, annual infrastructure spend in sub-Saharan Africa is expected to reach US$180bn by 2025. This is an important driver of economic development and growth as well as job creation especially for emerging economies, which benefit the most and do so in a relatively short space of time.
The fund has played an integral part in infrastructure funding since its launch by providing pension funds with access to a sustainable vehicle to fund these initiatives in infrastructure and development sectors such as power, transport-corridors, healthcare, transport, education, and housing.
The successful partnership with the Housing Investment Partners (HiP) and the National Housing Finance Corporation (NHFC) to provide loans to low- to mid-income earners is a perfect fit for the fund’s mandate.
“This sector of the market typically cannot afford the monthly straight amortising instalments of traditional banking products nor make the required upfront deposit,” said Lightfoot. “The collaboration addresses the housing backlog and also creates real, tangible assets.”
Lightfoot points out that home ownership is a significant driver of prosperity and provides a solid framework within which to address the socio-economic issues in the country. The benefits to Futuregrowth’s clients are clear: good risk adjusted returns with sound credit enhancement.
The Trust for Urban Housing Finance (TUHF) is another example of how the fund has assisted emerging entrepreneurs with access to finance to purchase and refurbish derelict properties for the rental market. This on-the-ground initiative has enabled them to own a sustainable business, which in turn contributes to the social upliftment, restoration, and development of communities and individuals.
The fund has also played a significant role in South Africa’s Renewable Energy Independent Power Producer Programme (REIPPPP) through funding that it has provided to various independent power producers. This is an important and successful governmental initiative to source renewable sources of energy and a perfect example of how private public partnerships should work.
The above examples illustrate what can be achieved in this space and that pension funds can earn long-term, stable risk-adjusted outperformance while delivering returns that have tangible social impact.