Nathaniel Micklem, Co-Head of Emerging Market Alternative Credit at Ninety One
Ninety One is proud to announce the launch of the Ninety One SA Infrastructure Credit Fund, with a mandate to promote sustainable and inclusive economic growth in South Africa. Amid South Africa’s well-documented challenges with power, rail and ports, more than 80% of investments will be targeted for South Africa, delivered through debt funding of public and private sector infrastructure.
Ninety One is leveraging its existing expertise in managing strategies across illiquid and liquid credit to launch the fund. With a track record of more than two decades, the more than 30-strong Emerging Market Alternative Credit team manages assets in excess of R108bn*, has invested R58 bn in infrastructure across various South African and African credit strategies and supported over 130 projects with a deployment rate of R7 bn per annum.
The evergreen Fund, led by portfolio managers Alastair Herbertson and Bashier Omar, and investment specialists Sine Zulu, Thanzi Ramukosi and Puleng Pitso, is open ended, allowing for the inclusion of longer-dated infrastructure project loans and bonds, while simultaneously supporting greater investor liquidity. Utilising a mixture of public and private credit, the Fund invests primarily in a diversified pool of senior debt instruments (both loans and bonds) focusing on South African infrastructure and developmental assets.
Current investments include key South African infrastructure providers such as the South Africa National Road Agency (SANRAL), the Lesotho Highlands Water Project (LHWP), Airports Company South Africa (ACSA) and KaXu Solar One, the first solar thermal electricity (STE) plant in South Africa, and the largest on the continent.
Nathaniel Micklem, Co-Head of Emerging Market Alternative Credit at Ninety One, says that South Africa should be spending at least 30% of GDP by 2030 on infrastructure to promote inclusive economic growth.
‘Unfortunately, the reality is that, compared to the rest of the world, South Africa is in the bottom quartile of gross fixed capital formation (GFCF) as a percentage of GDP. The World Bank has estimated that this key metric supporting infrastructure investment was at just 14% in 2022. The need to invest significantly in South Africa’s infrastructure has become beyond critical, and this fund has been designed to encourage investors to contribute to South Africa’s nation-building and economic growth while benefitting from solid investment returns.’
Micklem says that the Fund provides investors with numerous advantages. ‘Importantly, exposure to infrastructure as an asset class supports diversification, given its low correlation to other asset classes. Investors also have access to liquidity through quarterly withdrawals – a feature not typically available from infrastructure assets – and access to a differentiated infrastructure debt offering across multiple sectors, with a steady pipeline of new projects.’
The Fund’s investment philosophy is driven by fundamental analysis, which is centred on assessing the quality and sustainability of a company’s cashflows, and the extent to which that company can repay its debt obligations over the investment time horizon. At the same time, the Fund’s managers ensure lower levels of concentration to safeguard the portfolio against the adverse effects the default of one company or the weakening of a particular sector may cause.
‘By having a good understanding of how the Fund may behave under various scenarios, we can assess whether the risk-reward characteristics of the portfolio are satisfactory. Through idea generation and proactive origination, we work closely with banks and borrowers to originate assets directly for our funds as well as purchasing assets on the open market,’ says Micklem.
In addition, the investment team works closely with Ninety One’s dedicated Sustainability team, utilising the team’s internally developed ESG toolkit to evaluate new opportunities.
ENDS
* Source: Ninety One, 30 September 2023.
