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An African perspective on real assets


“Infrastructure is at the centre of the plan,” said Tito Titus Mboweni, during his Medium Term Budget Policy Statement. He continued, “Government has initiated a process to review Regulation 28 to make it easier for retirement funds to increase investment in infrastructure should their respective boards of trustees opt to do so. At all times, trustees are expected to put the interests of retirement fund members first.”


Real assets are physical assets such as real estate, energy, infrastructure, and natural resources. These assets are most accessible through alternative asset classes, specifically via private market investing.


David Moore, Head of alternative investments at Alexander Forbes Investments, discussed Africa’s unique investment landscape in the context of real assets at the Virtual Alternatives Conference 2020. According to Moore, Africa requires annual investment of more than USD100 billion in infrastructure and real estate owing to some of the following drivers:[1]


  1. Electricity supply: Only about 43% of Africans have access to reliable, consistent electricity supply.

  2. Paved roads: Approximately 80% of freight traffic in Africa relies on roads for transport, but less than 25% of Sub-Saharan Africa roads are paved.

  3. Population growth: The world’s population is growing at around 1.2% per year, while Sub-Saharan Africa’s population growth is above 2.7% per year.

  4. High urbanisation: Nine of the ten countries with the highest urbanisation rates in the world in 2015 are in Sub-Saharan Africa.

Moore observed positive historical trends in South Africa’s infrastructure development, referring to the country’s renewable energy programme, which was among the most successful of its kind both on the continent and worldwide. Moore noted that the continent presents further opportunity for similar public-private sector partnering. A case in point is Nigeria, which has a significant power deficit with a high reliance on expensive diesel generation.


He noted furthermore that Africa (excluding South Africa) has a chronic shortage of high-quality retail and office real estate assets. “Rental reversions, lack of available stock and increased consumerism have driven real estate development and transaction activity on the continent as a result of population growth and the growing trend in urban migration,” says Moore.

Moore said Covid-19 has driven new themes in real assets on the continent:


  • Rural retail: Unlisted real estate practitioners continue to be active investors in rural retail. This has proved resilient during Covid-19 and is a highly impactful sub-asset class within the commercial real estate sector.

  • Work-from-home ready portfolios: The new normal of working from home or remotely is beginning to leave corporate tenants questioning the need for large office outfits in central business districts. This theme may potentially drive the rise of allocations to more diverse, work-from-home ready portfolios of residential real estate assets.

  • Convenience centres preferred: Covid-19 has seemingly changed consumer retail behaviour with convenience centres being preferred to their big box alternatives, which drives portfolio augmentation strategies of real estate investment practitioners.

  • Industrial tilted portfolios remain resilient: These portfolios are in demand, given the rise of online consumerism on the back of protracted national lockdowns.

Real assets include the social infrastructure sub-asset class, which develops primary and secondary schooling infrastructure and retirement village and frail care facilities nationally in South Africa. In this way, commercially acceptable returns are achieved for pension fund clients while simultaneously creating sustainable, social infrastructure, which fulfils pivotal social needs.


“Allocating to real assets on the continent through the private market asset class has a demonstrated ability to deliver on key social outcomes whilst concurrently providing attractive commercial returns to participating investors,” concludes Moore.


ENDS

[1] African Infrastructure Investment Managers, African Development Bank, Brighter Africa (McKinsey & Company), World Bank (2015)

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