Mergence Investment Managers and Third Way Investment Partners have invested R225-million each to refinance a major renewable energy plant in a remote area of South Africa, which cannot be named owing to confidentiality reasons.
The renewable energy and infrastructure funds of both Mergence and Third Way have achieved returns in excess of the Consumer Price Index + 4 hurdle on their infrastructure funds.
Both parties to the transaction have records in impact and infrastructure investing on behalf of institutional investors, mainly retirement funds whose long-term liabilities are a match for long-term infrastructure investment, providing an inflation-linked return, while also investing in the local economy.
According to the investment managers, the private sector will more than ever play a major part in financing domestic infrastructure needed in South Africa to accelerate growth following the devastating economic aftermath of the Covid-19 lockdown.
In this regard, asset manager support will bolster the government’s R100-billion package to stimulate infrastructure development.
Third Way Investment Partners founder and MD Fulufhelo Makwetla says the company has capital of about R1-billion and is looking for opportunities to invest.
He adds that fast-tracked subsequent rounds of South Africa’s Renewable Energy Independent Power Producer Procurement Programme will be a welcome investment opportunity.
Mergence Investment Managers joint MD Yoza Jekwa says the vital role of asset managers in facilitating responsible investing of pensioner retirement savings into viable infrastructure assets is multi-layered and cannot be under-estimated.
“The asset manager has a fiduciary responsibility to safeguard the monies it invests on behalf of pension funds and their beneficiaries through sourcing, vetting and structuring infrastructure deals, as well as stringent continued oversight of project management.”
Mergence Investment Managers infrastructure and developmental investments head Mark van Wyk says the refinancing or secondary investments in an existing project indicate a positive maturation of the renewable energy market in that transactions between project lenders can be executed.
“It means that the energy projects can be sustained, jobs retained and energy continue to be dispatched into the grid.”
Mergence has raised R1.7-billion for its renewable energy fund, and invested in 14 renewable energy projects across both wind and solar, 11 projects of which have been operational for some years.
Mergence has also raised R3-billion across other sectors such as affordable housing, information and communication technology, water and sanitation, as well as renewable energy. As a result, an estimated 17 000 jobs have been created, often in rural and remote parts of South Africa.
Third Way Investment Partners has raised R2.5-billion for its infrastructure debt fund, investing in over 30 projects in the poorest of South Africa’s provinces including Limpopo, the Northern Cape and the Eastern Cape, and impacting the lives of communities which are frequently excluded from such opportunities.
Mergence Investment Managers was an initial signatory to the Principles for Responsible Investment supported by the United Nations, as well as an initial signatory to the Code for Responsible Investing in South Africa, chaired by Third Way co-founder John Oliphant.
Mergence Investment Managers has also been investing in environment, social and governance as far back as 2010. The company produces a yearly impact report quantifying the social and environment impact of its investments.
The report also includes investment case studies ranging from renewable energy, to low-cost housing, taxi finance and a medicinal cannabis project in Lesotho.
Third Way founded itself in developmental and infrastructure investing on behalf of retirement funds, given the company’s experience at the Government Employees Pension Fund (GEPF), where they implemented the GEPF’s developmental investment strategy with a focus on economic and social infrastructure, greening the economy and job creation through investments in small and medium-sized enterprises with a focus on transformation.