Ninety One, a JSE- and LSE-listed investment manager, in association with Ethos Private Equity has launched an impact investment initiative, the Ninety One SA Recovery Fund.

The fund’s objective is to support the preservation of the South Africa’s productive capacity and economic recovery from the effects of the COVID-19 pandemic, while seeking an attractive return for investors.

Hendrik du Toit, Founder and CEO of Ninety One, said: “The lockdown, while necessary to protect the nation’s health, has been akin to putting the economy into an induced coma. South Africa faces a once-in-a-generation economic challenge. The SA Recovery Fund is a market-led, impact initiative to mitigate the negative economic impact of the COVID-19 pandemic, while seeking a commercial return.”

“With this fund, we would like to support quality businesses and protect the nation’s productive capacity, which will in turn preserve thousands of jobs and support the South African tax base.”

Ninety One will be targeting a fund size of R10bn, with funding raised via two closes from South African institutional investors.

With a focus on the urgency of the economic situation in South Africa, Ninety One is targeting a first close of the fund in July 2020.

The fund aims to achieve a positive impact with attractive returns via a clear set of investment outcomes.

Priorities for the fund are to protect SA productive capacity during the next 24 months, preserve jobs and protect permanent loss of equity value.

The fund will consist of a concentrated portfolio with an appropriate mix of senior and subordinated debt, preferred equity, listed equity and private equity with a deployment time horizon of 18 to 36 months.

The fund will initially seek to attract support from the country’s institutional investors.

In addition, subject to the necessary regulatory enablement, Ninety One is hopeful that retail investors in South Africa will be able to access the Ninety One SA Recovery Fund.

In other parts of the world, during the past five years, closed-end mutual funds have been created to facilitate retail investment into long-term assets.

In recent weeks, South Africans have seen growing evidence of the devastating impact of the protracted lockdown on the economy.

There is now a body of evidence suggesting that the contraction in Gross Domestic Product could be as severe as 10%, and the country looks set to experience the worst recession in living memory.

If productive capacity is not preserved, South Africa could experience an L-shaped recession, whereby it takes a decade for the economy to return to its 2019 size.

Ninety One believes the long-term savings industry has an important role to play in supporting the recovery of the SA economy by fortifying the balance sheets of otherwise competitive businesses to cope with the risk of a deeper or longer recession than initially anticipated.

There are good companies across all sectors of South Africa’s economy that will be facing funding needs that cannot be provided by the banks or the state.

For some, the economic contraction will limit their access to capital to grow and expand existing capacity; for others, it will challenge their solvency as well as their resolve to remain operational.

Ninety One believes that a broad spectrum of skills will be required to invest the fund’s capital well and to achieve its dual objective of returns and impact.

The fund will combine the credit and publicly-listed equity skills within Ninety One with Ethos’ private equity expertise, and strong track record in generating returns across multiple economic cycles.

Given the significant funding need, Ninety One hopes that this fund launch will encourage other private sector impact initiatives from the investment industry.

Stuart Mackenzie, CEO of Ethos Private Equity, said: “The Ninety One SA Recovery Fund provides Ethos with a unique opportunity to partner with Ninety One on a critical funding initiative at an important moment for our nation. Our experience and institutional capabilities in private equity ideally position us to play a value adding role in the execution of the Ninety One SA Recovery Fund’s investment strategy.”