Old Mutual funds infrastructure for long run

Published Dec 11, 2013

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Johannesburg - With nearly R30 billion infrastructure investment committed for South Africa alone, long-term insurer Old Mutual says it is in the game for the long run, not quick returns.

Jurie Swart, the head of infrastructure at Old Mutual Investment Group South Africa (Omigsa), said the group took a 20- to 30-year view when investing in infrastructure. Most of its funds had a minimum commitment of 10 years from investors.

Earlier this year Old Mutual came out in support of responsible investment of long-term savings in South Africa’s infrastructure development.

At the group’s investor showcase last week, Omigsa went on to challenge African institutional investors that were not backing the African growth story.

Rojie Kisten, Omigsa’s head of capital raising, said: “Raising the money is not easy. One of the biggest challenges we face is that there are African institutions who do not commit to the continent… Often we have to go look for that capital in America, in Europe, in Asia and in the Middle East.

“And the big question we get asked is why are the [African funds] not putting their money where their mouth is.

“South Africa has led and we hope that the rest of the African continent will follow in terms of putting their money where their mouth is.”

Kisten said the money the group had raised under South Africa’s impact housing fund had come from local institutions including Old Mutual, the Public Investment Corporation and the Development Bank of Southern Africa.

The insurer has eight direct private equity African funds, four South African direct private equity investment funds and has launched a third series of its South African fund of funds programme.

Its infrastructure focus is split into social infrastructure, including housing and schools, and economic infrastructure, where its main stress is on transport and energy.

Its energy sector focus is on renewable energy and projects it has funded include solar plants in the Free State and North West and wind farms at Cookhouse and Jeffreys Bay in the Eastern Cape.

In South Africa, Old Mutual manages R12bn in economic infrastructure assets, R9.15bn in its housing impact fund, R1.2bn in a schools and education investment impact fund, and R420m in an agricultural fund.

In the rest of Africa, it manages R5bn in economic infrastructure funds. It has raised $50 million (R519m) under an African housing fund and is aiming for $150m when the fund closes.

In the agriculture space, the Old Mutual African Agricultural Fund has set a target to raise $500m to invest in row crops, timber and dairy farms, among others.

The majority of the group’s projects in different countries have the government as a counterpart. The group invests in infrastructure and runs it on a concessionary basis for a certain period before handing it back to the government at the end of that period.

Even in the impact investment space, Old Mutual said, it took a commercial view.

“People need to understand, we are dealing with people’s long-term savings. So everything we do is of commercial interest. In the impact space there is often a perception that it’s a handout space. But it’s for commercial returns and servicing communities as a secondary aspect,” Swart said.

He said while the group might be considered inflexible because it applied a very traditional model for project finance in the infrastructure space, it did so because it wanted to be responsible with people’s savings, and this consideration was crucial if countries wanted more institutions to invest in their development.

“You cannot put down a railway line in a country and walk in the next day and roll it up and walk out if things go wrong,” Swart said. “So we are pretty cautious that the project finance structure around our infrastructure investments is in place; that we are certain we have a structure that can survive in the long term.” - Business Report

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