The National Treasury’s Jobs Fund in South Africa has agreed to contribute R200m to 27four’s Black Business Growth Fund to be used to create jobs through providing funding to black private equity fund managers focussed on investing in mid-market, privately-owned companies for growth.

27four has in-turn committed to raising more than R1bn in matched funding.

The Jobs Fund was established by the National Treasury in June 2011 with the aim of supporting innovative initiatives and approaches to job creation.

“The Jobs Fund contribution will help catalyse and accelerate investment from other investors into black private equity,” said Chad Potter, 27four’s Principal: Unlisted Investments.

“All of the capital committed to our Fund will be invested by six to eight black-owned asset-management firms, and it will ultimately reach between 40 and 60 companies in total, helping them grow, transform and create jobs. Everybody wins,” he said.

While growth in the black-owned listed equity management sector between 2009 and 2018 has been impressive at 243%, it still leaves South Africa’s black-owned asset managers managing just R490.3bn (10%) of the total of R8.7trn in assets under management in South Africa, according to 27four’s 2018 BEE.conomics survey on transformation in South African asset management. 

27four’s Black Business Growth Fund pools investor capital and provides investors with access to a number of managers and a broadly diversified underlying investment portfolio.

It also manages the selection and monitoring process and the allocation of capital to black managers.

“The Jobs Fund investment of R200m will help to catalyse more than R5bn in capital for mid-sized South African companies looking to grow,” said Black Business Growth Fund Head Rory Ord.

“This is a sector of the market that can deliver real growth, both financially and in terms of jobs, with the right kind of investment.” 

In addition to the capital injection that the selected companies will receive, they will also get strategic input, such as assistance with identifying acquisition targets and accessing new markets,” he said.

The mid-sized companies targeted for investment typically have an annual turnover of between R100m and R500m.

The investment goal is to triple these companies’ size in a five- to seven-year period.

During the exit phase (year nine to twelve) the returned capital attributed to the R200m allocated by the Jobs Fund will be utilised as a legacy fund to support more black private equity managers.

Ord said: “Our fund life is actually 12 years. A lot of the input will be strategic. Many of these companies don’t have the level of governance and systems to position themselves successfully for growth.”

The Black Business Growth Fund will select fund managers who will choose businesses to invest in.

There are, however, strict investment criteria, including that a significant amount of the funding needs to be deployed into labour-intensive sectors, such as manufacturing and fast-moving consumer goods retail and services businesses.

There is also a transformation requirement embedded in the capital injection – companies that receive Black Business Growth Fund money need to transform in terms of ownership, management and procurement. 

Najwah Allie-Edries, Head of the Jobs Fund, said: “In addition to job creation, this project will have a transformative impact on the private equity market. Its success will make a case for adoption by government to attract private capital for investment in targeted priority sectors.”