Ninety One MD Thabo Khojane sees growing appetite for funding projects

With SA needing R1.6-trillion in public sector infrastructure investment by 2030, the country’s biggest asset manager, Ninety One, says there is renewed appetite among investors to deploy capital to infrastructure projects.

It called on retirement funds to take advantage of the opportunities that are opening up.

Thabo Khojane, MD at Ninety One, said that while SA has faced infrastructure investment challenges — from low levels of government funding capacity to investor concerns about governance — the landscape is improving at a “rapid pace”.

“Not only has the government instituted numerous policy reforms, but this has coincided with growing investment expertise able to cater to a deep savings pool,” Khojane said.

Business Day reported a few weeks ago that public works & infrastructure minister Sihle Zikalala said poor project preparation is undermining the government’s efforts to use infrastructure development to grow the struggling economy. About R1.6-trillion is needed in the next seven years to roll out infrastructure, he said.

Khojane said retirement funds have a big role to play. SA’s retirement industry is said to house assets in excess of R4.6-trillion. Khojane said there is a perception that retirement funds are reluctant to invest in illiquid assets such as infrastructure but this is unfounded.

Large retirement funds, in particular, have the advantage of scale and can afford specialist investment expertise and advice, as well as well-resourced governance models, which at times can include full-time in-house investment experts.

“So, does this mean that the only persisting obstacle to even higher exposure in retirement funds is the absence of new government-sponsored infrastructure projects? Perhaps, but even this obstacle might soon be removed when Infrastructure SA starts to roll out new projects,” Khojane said.

“We already have a large and growing universe of infrastructure investment opportunities. Retirement funds should grasp the opportunity to participate in this exciting growth sector.”

Infrastructure SA, housed in the department of public works & infrastructure, oversees the preparation, appraisal and evaluation required to package a credible and market-ready infrastructure project pipeline.

Investment in infrastructure has traditionally offered investors income, diversification and inflation protection. And given its long-term nature, investment in infrastructure is seen to be a good match with retirement savings.

Khojane said that while unlisted equity provides the catalytic energy to get projects off the ground, the larger opportunity for retirement funds lies in unlisted credit (or private debt), which typically exceeds the equity required for projects.

“While the equity upside is foregone, unlisted credit has several attractive features for retirement funds.

“First, valuation of private debt is objective and stable.

“Second, the investment ranks ahead of equity in any downside scenario, meaning improved recovery and a narrower and more predictable range of outcomes,” he said.

“Furthermore, unlisted credit earns semi-annual or quarterly interest payments and receives amortisation payments over the life of a loan, while the maturity date of a loan also provides a clean exit without the need to take market or resale risk.”

Khojane pointed to existing infrastructure investments by retirement funds. These include a gas infrastructure joint venture between the governments of SA and Mozambique and Sasol, to facilitate the transport of natural gas from gas fields in Mozambique to markets in Mozambique and SA.

khumalok@businesslive.co.za