results
A new trend of investment is bringing good returns which could eventually assist with the delivery of housing, electricity and jobs, reports Ferial Haffajee
INVESTORS with a conscience go for a slightly different bottom line than one that measures profit alone – which means being able to use your money to pack a social punch too.
Although not common, it is becoming easier, with big investment funds being launched to fund development, while smaller investors have unit trusts to choose from.
The trend is being led by a new breed of investment managers who see that money can be made. They are bright young things, in the traditional business garb of spotted tie and black suit, who know the language of “above average returns, asset management and a mixed portfolio” well.
But to that they add a new lexicon: socially responsible investment, community growth and infrastructure provision.
It has taken a sceptical market by surprise with good results. If more retirement funds and individuals use their money to social ends, it could help with the big D – delivery of houses, electricity and even jobs.
And the joint clout of ordinary people could begin to shape company policy as the unit trust, Community Growth Fund, is trying to do by setting investment criteria for the companies in which it invests. It measures a company’s commitment to, among other criteria, black economic empowerment, fair labour practices and affirmative action.
Many hardened investment advisers shout “Phooey!” But many more are being brought round. The Association of Unit Trust’s Colin Woodin says: “People like to be seen to have a social conscience.” We live under a government whose policies come close to those of a social democracy, so an investment climate that follows suit is timeous.
The government last year changed pension laws to provide that half of all pension fund boards must comprise employee or worker representatives – these new pension fund managers control many millions of rands and will want to invest to benefit not only their members, but their wider constituencies.
And private-public sector partnerships for development (like the Maputo Development Corridor) are all the rage and will need financing.
“It’s not ethical investment in the traditional sense. What we have is a home- brewed concept which focuses on the development of the country,” says Michael Leeman, who co-ordinates the Southern Life fund, Futuregrowth
COMMUNITY GROWTH FUND (CGF)
Minimum investment: R30 a month.
Performance: Top performing unit trust for the first three months of this year, showing a profit of 17,4% (against a loss of almost 5% in the previous quarter). In the past two years, it was placed 16th out of 31 general equity funds (a type of unit trust).
What is it? The CGF is a unit trust. A unit trust allows individuals to pool their resources to invest.
How does it work? The unit trust is managed by Syfrets for Unity, a union-owned investment company. The CGF has attracted assets or investments of R517-million.
The fund has set a range of criteria a company must meet before it will win funds from the CGF. The homework is done for investors and information is easily accessible so you can check a company’s green policies or industrial relations reputation before investing.
Recently, the CGF has shifted its investment focus away from an assessment of labour relations practices toward worker participation. Companies that sell stakes to black partners and have good training, affirmative action as well as occupational safety policies and practices are highly rated.
If a company scores below 50% on the CGF’s scorecard it is rejected for investment: 18 companies have not qualified, including Reunert, most gold mines, Nu-World, Nasionale Pers and Coronation. Rejected companies are continually reassessed.
Bad news: “It can be limiting as it precludes certain types of investments,” says Woodin.
COMMUNITY INCOME FUND
Minimum investment: R500 a month or a R5 000 lump-sum.
Performance: The fund has assets of R28- million and its return at the end of March was 14,1%. Profits doubled between June 1996 and March 1997.
What is it? The Community Income Fund is also a unit trust managed for Old Mutual by the Unity company. Its focus is on community development, whereas the CGF is workplace- or company-based.
The CGF invests in companies listed on the Johannesburg Stock Exchange, while the Community Income Fund invests in fixed income securities such as long bonds.
How does it work? Investments are only made in low-risk sectors and market-related returns are most important.
But companies or projects chosen for investment have to meet other criteria. The Labour Research Services, which vets companies for the fund, grades criteria such as: effective community participation, job creation potential, skills provision and contribution to higher living standards.
The fund holds stocks in First National Bank negotiable certificates (its lending record was vetted), Eskom (for its electrification projects), Umgeni (water provision) and Transnet. Rand Water was rejected for investment.
Bad news: It’s expensive for the small investor as the fund is aimed at institutional investors.
FUTURE GROWTH
Minimum investment: No minimum, though it is aimed at retirement funds.
Performance: The fund has assets of R1,6- billion. It has generated profits of 25,6% on the balanced fund and 75,4% on the equity fund; but is not likely to continue at these levels.
What is it? Futuregrowth is made up of four different funds: the balanced fund, the income fund, the equity fund and the property fund.
These different funds tout for the business of retirement funds and then invest this money in a range of projects and companies that advance greater black empowerment and development.
Its largest investments have been in the Johnnic deal (R66-million), the Real Africa Group (R36-million in shares) and First National Bank’s Infrastructure Finance Corporation (R10-million).
It has also invested R9-million in the Trans-Caledon Tunnel Authority, linked to the Lesotho Highlands Water Project, which has been heavily criticised for its impact on communities in Lesotho.
Bad news: It’s aimed at retirement fund managers.
Individual investors who may like Futuregrowth’s ethics have to be very rich; buy a life or endowment policy from Southern Life (the returns on which are not as high); be persuasive enough to lobby your company pension or provident fund to invest with Futuregrowth.
Advisers say you should view your company retirement plan as part of your personal investment portfolio and not be afraid to question the investments being made on your behalf. Of course, trade union lobbying would have a far greater impact. Leeman says the company is considering the launch of a unit trust.
FUTURE BUILDER
Minimum investment: The company charges a minimum management fee of R50 000, which would probably mean a minimum investment of R5-million.
Performance: Too new to say. The fund was only launched three weeks ago, but fund manager Asief Mohamed says investments must out-perform the market.
How does it work? Run by Metropolitan Life, it is a rival product to Southern Life’s Futuregrowth. But more entrants can only mean more funds for development.
It’s different to Futuregrowth in that it will focus on unlisted companies to ensure its investments are not a paper chase – the term given to “just moving money from one investor to another”, says Mohamed. It will invest in listed companies if it generates economic growth.
Projects and companies that win Futurebuilder’s stamp of approval must upgrade skills, provide jobs and infrastructure.
Bad news: It is not aimed at the person in the street though access can be gained through lobbying your retirement fund.