Empowerment funds with teeth?

Sanlam’s new empowerment fund scheme is for previously disadvantaged South Africans only.

A mooted product-based solution to genuinely empower previously disadvantaged South Africans has just been launched by Sanlam.

A knee-jerk reaction to empowerment deals may be understandable because investors haven’t enjoyed good returns on BEE funds in the past—roughly half have failed when it comes to implementation. But Bongani Mncwango, executive of Sanlam Personal Finance Distribution, is adamant that these funds, which are actively managed by Sanlam Investment Management, are of a different breed and do not have cosmetic or gimmicky value.

In line with Sanlam’s other products, the funds will offer investors diversification across asset classes: Private equity (including BEE financing), equities (socially responsible listed shares), property (community builder property investments), bonds, government bonds and cash.

This spread takes into account two factors: First, the fact that BEE shares haven’t been star performers, traditionally; and second, the fact that once the fund has grown big enough (hundreds of millions, say), Sanlam will consider rolling it out into a fully-fledged BBBEE vehicle that can invest directly into companies seeking empowerment credentials, or as a private equity investor. This, at least, is the plan.

Who can invest?
Some critics have thornily commented on the fact that only those who were previously disadvantaged can invest. But, says Mncwango, it’s precisely people who haven’t had access to the markets who need to benefit here. These clients will collectively have access to the big BEE funds, bypassing problems that have typically bedevilled BEE deals—the strict lock-in period, which affects liquidity, and the problem of a large upfront outlay.

You don’t have to be one of the elites or be politically connected to benefit in terms of this scheme. And because this is a collective fund, clients will be able to play in a serious investment space, with Sanlam Investment Management’s platform providing the launching pad. You have access to private equity, including BEE financing, not available to the general public (perhaps also a point of contention for some critics).

Sanlam’s stated aim is to offer investment performance alongside social and economic upliftment in communities (“community builder” property investments are a component of the funds).

How are the funds packaged?
The funds take into account conservative, moderate and aggressive risk profiles, but the underlying message is that investors need to accept that long-term investment will yield better results. This isn’t a get-rich-quick scheme. Remember that BEE shares are not easy to trade, so the best plan is to hold them until they reach maturity.

It has been noted on a number of occasions that where a BEE partner wants out or a deal collapses for some reason, the empowered company would likely lose its empowered status. Interestingly, once this fund develops to a point of investing directly in companies seeking empowerment credentials and investors within the fund keep changing, the empowered companies will not risk losing their BBBEE empowerment credentials, due to the nature of the fund management platform.

The minimum premium for endowments is R250 a month for terms longer than 10 years and R400 a month for terms shorter than 10 years.

You obviously need to be at a certain economic level to invest—this may turn out to be a challenge for those on government grants. But if you have money to set aside for investment this is affordable, besides which, you have the flexibility to switch to other funds if you want to exit after about three years or so—you have the option of moving to other Sanlam funds if you meet certain criteria.

Support for government’s social and economic upliftment initiatives
Due to the fund’s focus on socially responsible and economically uplifting investments, there is a direct benefit for the people and investors on the ground. Such investments are targeted at, but are not limited to, infrastructure, low-income housing, black-owned enterprises and agriculture. This on-the-ground empowerment isn’t paper-trail stuff, so Mncwango is quietly confident that the funds will be well received.

In the meantime, prospective investors have much to mull over, not least of all the fact that they will need to wait for quite some time before they see returns, which is in the nature of all long-term investments.

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