Institutional investors have financial might to change mindsets and investment patterns
Large-scale investment vehicles have a vital role to play and must deliberately invest for the future
Pension funds collectively have assets under management worth about R4.5-trillion, and therefore the muscle to make a major, positive impact on our world.
And they should — especially in a country such as ours, which is crying out for economic growth, infrastructure development and social equality, and buckling under the pressure of the Covid-19 pandemic and lockdown. Every day, it seems, SA’s needs in this regard grow.
In essence, impact investing is about putting your money into companies and organisations to generate not only sustainable financial returns over the longer term, but quantifiable beneficial social or environmental returns as well. In other words, impact investing is about doing good as well as doing well.
We all grasp the pressing need for investment in our country’s infrastructure, I think; indeed, President Cyril Ramaphosa made it a cornerstone of the government’s agenda for inclusive economic growth in his 2020 state of the nation address.
One need only avoid the potholes in our roads, note the lack of decent, affordable education provision for our children or fret over how our already overburdened public health sector is creaking under the strain of the Covid-19 pandemic, to be aware of this.
Certainly, without economic infrastructure development (such as roads, railways, ports and energy) and social infrastructure development (such as schools, student accommodation, housing and hospitals) it will be nigh impossible for our country to escape its fiscal quagmire and address challenges such as economic growth, unemployment, energy provision, education, health, housing provision, and social and economic inequality.
In a country such as ours, with its relatively small taxpayer base and high debt burden, it’s simply not feasible to expect government (ultimately, you and me) to foot the entire bill for infrastructure development. But such development has to happen if we are to build a better, transformed society: one that is stable, sustainable, just and equitable.
Large-scale investment vehicles such as the Eskom Pension and Provident Fund (EPPF), for which I manage investments, have a vital role to play here. But for them to maximise their developmental and social effects they must deliberately invest for the future.
For us responsible investing encompasses the whole spectrum of ESG factors (environmental, social, and governance factors), transformation and impact investing principles.
Nearly two decades ago, as SA began legislating BEE, the EPPF embraced transformation as a central tenet of its investment philosophy, along with financial performance. Our initial focus was on transforming the asset management industry, which at the time was overwhelmingly white and male in its composition (great strides have subsequently been made in addressing this, but much remains to be done).
As a major institutional investor, we had (and still do have) the financial power to change mindsets and investment patterns in the asset management sector. By placing a meaningful portion our investments with black-owned asset managers as a matter of policy, we not only assist them to be competitive against more established players, but our vote of confidence in them also enhances their reputations and makes them more attractive to other investors.
Essentially, by investing through a specific asset manager (bearing in mind that 60% of our investments are managed externally for good governance reasons), we’re engendering confidence and market certainty through our own due diligence. We’re saying that this asset manager passes our muster and is therefore a good option for other investors too.
In the past decade we’ve taken transformation a step further, with a development programme for managers in the private equity space. This programme, which is run by an independent entity on our behalf, has made a significant contribution to growing investment teams that reflect transformation and greater diversity.
In the energy space, we have equity in renewables such as solar power through our investment in the Stanlib Infrastructure Fund, and in debt investment in renewables projects through the Vantage GreenX Fund.
When one considers SA’s long-standing energy crisis, this is what ESG investing is all about: putting money into green energy alternatives that will not only address the current situation and support economic growth but also promote a cleaner environment for us all to enjoy in the decades to come — simultaneously leveraging a safe investment that will derive strong long-term financial returns for the EPPF and its members.
We grasp the importance of not going it alone: collaborative action, involving pension funds, asset consultants and international players, makes infrastructure development investment more viable, more affordable and less risky.
So we’re part of the Asset Owners’ Forum, a roundtable body that includes some of the top retirement funds, set up under the auspices of Batseta, the non-profit body for SA retirement fund principal officers, trustees and fund fiduciaries. The Asset Owners Forum aims to bring together pension funds to invest in private markets such as infrastructure (economic and social), direct real estate, and private equity.
It catalyses the allocation of retirement funds to these real assets by sharing vital due diligence information, curating bankable projects/funds, lowering due diligence costs (legal, financial, feasibility). In short, it flattens the learning and the cost curves. However, the pension funds retain the discretion of deciding to which funds or transactions they invest.
Investing in these real assets in a collaborative manner will make our country more attractive to international institutional investors. If they see that smart money is being invested locally, they’ll be more inclined to commit funding themselves — and that means good things for SA.
When you find the right investments and you invest smartly, it’s amazing the returns you can achieve and the effect you can achieve. For our members’ futures, and that of SA, impact investing is the only way to go.
• Mkhize is chief investment officer at the Eskom Pension and Provident Fund.
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