Ethos Capital has received about R1.1-billion from investors, including investment adviser Ethos Private Equity (EPE), following its intention to list its issued A ordinary share capital on the main board of the JSE. The listing, scheduled for this week, is subject to market conditions and the requisite approvals by the JSE.

The company aims to raise up to R2-billion and plans to issue up to 200-million ordinary shares to selected and institutional investors in terms of a private placement.

Rand Merchant Bank, a division of FirstRand Bank, is acting as the financial adviser, sole global coordinator, bookrunner and JSE sponsor in relation to the listing.

Ethos is listing as an investment entity in the ‘Financials – Speciality Finance’ sector of the JSE and will offer investors long-term capital appreciation by directly and indirectly investing in a diversified portfolio of unlisted investments managed by EPE, the largest private-equity firm in sub-Saharan Africa.

The main purpose of the offer and the listing is to raise capital to enable Ethos to implement its investment strategy and to provide a liquid access point to enable public market investors to obtain exposure to a diversified pool of unlisted assets and participate in Ethos’ long-term growth prospects.

EPE CEO Stuart MacKenzie noted at a media briefing last month that the company had been investing in its franchise over the past five years, “with a view to shifting Ethos’ strategic vision from a single-product, pure-play private-equity model to become a diversified alternative asset manager”.

However, he emphasised that the company was not seeking to change its business model but rather to broaden both the opportunity set it can invest in and the universe of investors that can access the funds it manages. “We will continue to raise capital from our existing investor base who will invest in our funds alongside Ethos Capital,” MacKenzie said.

He highlighted that EPE’s historical performance had “consistently outperformed the listed benchmarks with 57% of its 91 realised investments having returned greater than three times the original invested capital, and 93% of realised investments having returned greater than twice the capital invested”.

The net proceeds from the listing are expected to be invested in several investment strategies. These include primary investments – commitments to various funds to be raised and managed by EPE during their respective fund-raising processes; secondary investments – acquisitions of existing limited partner interests in existing Ethos funds; and direct investments – acquisitions of interests in underlying investee companies alongside Ethos funds to the extent that the Ethos funds require coinvestors in the underlying investee companies.

Further, Ethos has been set up to provide investors with the opportunity to build a long-term investment relationship with EPE, Ethos CEO Peter Hayward-Butt reiterated at the media briefing last month.

“Significant care has been taken to ensure that the interests of Ethos shareholders and those of EPE are aligned for the long term and to ensure that there are no ‘fees on fees’ in the structure,” Hayward-Butt said.

Upon listing, EPE will buy 1% of shares in Ethos Capital and to strengthen the alignment of interests, EPE will acquire 5% of the A shares over time.

Ethos Capital will have commitments to underlying funds, such as Ethos Fund VII, the Mid Market Fund I, be a secondary provider of capital into Fund VI and provide direct co-investment into fund assets.

With the current Ethos buyout fund – Ethos Fund VI – approaching the end of its investment cycle and being 80% invested, and with a diversified portfolio, EPE intends to start the capital raising process for Ethos Fund VII during the second half of this year, or in early 2017.

Similar to the Ethos Fund VI, the objective of Ethos Fund VII is to invest in private companies with market-leading positions, an identifiable competitive advantage, strong cash flows and significant growth potential. The fund will target companies with an enterprise value of between R1.5-billion and R7-billion, with investments of between R450-million and R1-billion in each opportunity.

EPE recently launched the Ethos Mid Market Fund I and is in the process of raising capital for this fund. The Ethos Mid Market Fund I is a black-owned private equity vehicle, which will invest in companies with an enterprise value of between R500-million and R1.5-billion and which will seek to invest between R100-million and R350-million in each opportunity.

The focus of the Ethos Mid Market Fund I is on private equity investments in the mid-market space, coinvesting as the broad-based black economic-empowerment (BBBEE) partner alongside other Ethos funds in certain transactions and benefiting from facilitated BBBEE transactions with companies requiring a long-term BBBEE partner that has capital to meet growth requirements.

EPE has also acquired a high-yield and mezzanine credit platform and intends to launch a closed-end mezzanine debt fund dedicated to providing mezzanine and quasi-equity financing solutions to companies in Southern Africa to meet their intermediate capital funding requirements.