R120bn bonanza for black business due to new BEE code
Black entrepreneurs and finance professionals could be in for a R120bn windfall if proposed revisions to the Financial Sector Code (FSC) of Good Practice are adopted.
Revisions to the code, the second version of which was gazetted in 2012 to bring the 2004 financial services charter in line with broad-based black economic empowerment regulations, are in the works after the Department of Trade and Industry amended empowerment regulations in 2013.
Proposed amendments to the code include a scorecard for financing provided to black-owned businesses, which could see R122bn making its way from banks and life insurers to targeted investments, such as transformational infrastructure, black agricultural financing, affordable housing and a black business growth or SME fund.
About R47bn is specifically reserved for the black business growth fund.
"The black business growth fund has specific rules meant to target investing directly into black-owned businesses," said Polo Leteka, who is one of the Association of Black Securities and Investment Professionals’ representatives to the Financial Sector Charter Council.
"[It] ensures that we build a strong pipeline of black senior professionals, as the intention is that such monies are managed by black professionals either within the banks and insurance companies or it gets allocated to be managed by third-party black fund managers."
Representatives to the council said that the proposed amendments had been agreed on, but were yet to be finalised or gazetted by Trade and Industry Minister Rob Davies.
Leteka said about R25bn in the revised code would go towards covering shortfalls in the value that should have been created through black economic empowerment transactions in the sector.
These had either matured too early to deliver the desired value for participants, or had been bogged down with debt, which had to be paid to funders on the maturity of the deal.
Leteka said the fund was meant to replace the contentious "once empowered, always empowered" principle by rather directing shortfalls in meeting ownership targets towards direct investments in black-owned businesses.
FirstRand’s Patsy Stone said it was envisaged that under the new code financial services firms could do empowerment financing deals in lieu of ownership, using it as an equity equivalent.
"It can’t be done in both elements," said Stone. "For local banks it is likely to be financed within the empowerment financing scorecard."
Newly formed black asset managers are supported through an incubation programme
Stone said a guidance note for the black business growth fund — which has not yet been finalised — described it as a fund to finance black businesses and larger transactions where the owners would also be operationally involved in the business instead of just being equity owners.
"Sectors will include job-creating areas with the aim being to build black-owned ‘globally competitive’ organisations within SA," Stone said.
Trevor Chandler, the Association for Savings and Investment SA’s representative to the council, said that black business growth funding could also replace lost value as empowerment shareholders sold their shares.
Finance Minister Malusi Gigaba is also looking to persuade the Public Investment Corporation (PIC) to increase more of the R1.8-trillion it manages to black asset managers, another possible boon for black investment professionals.
Gigaba made the announcement a week ago, at a briefing to outline the "way forward for the economy" in the wake of the recession.
Several boutique black asset managers have been outperforming their more established peers for years, according to data collated by Alexander Forbes. At the end of its 2016 financial year, the PIC, which holds the investment mandates of public-sector funds such as the Government Employees Pension Fund (GEPF), had allocated about R57bn to 14 third-party black-owned firms.
The GEPF, the PIC’s largest client, accounts for R53bn of this amount, according to spokesman Matau Molapo.
"Newly formed black asset managers are supported through an incubation programme," Molapo said. "The allocation to the incubation programme is currently R5.5bn. Allocating assets for management by black asset managers is already embedded in the GEPF’s investment processes."
Molapo said the GEPF was not engaged in discussions with Treasury on this matter at this stage.