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Social impact investing in a continent of opportunity

by LC

Social impact investing in a continent of opportunity

The Isle of Man’s fiduciary sector has received a valuable insight into the opportunities – and challenges – of investing in Africa by a fund manager committed to creating social and environmental, as well as financial, returns.

Chris Roelofse manages STANLIB Multi-Manager’s alternative asset fund-of-funds portfolio. Based in Johannesburg, Mr Roelofse manages a US$600m fund of funds that is making a real difference to lives in Africa by investing in essential and sustainable projects, such as roads and bridges, power and energy, factories and buildings, and agriculture.

He recently spoke to members of the Isle of Man’s trust and corporate banking sector at the invitation of Standard Bank, which has a controlling interest in STANLIB.

The continent of Africa has achieved 5.2% growth per annum over the last ten years and the International Monetary Fund predicts that seven of the ten highest growth economies over the five years to 2020 will be in Africa. Over the next 30 years, its working-age population should double to 1.2 billion – clearly creating new consumer demand.

Although Africa is a continent of great potential, Mr Roelofse was also clear on the challenges for investors. These include unstable political and regulatory environments, crime and corruption, under-developed capital markets, the huge diversity of cultures and industries across the continent, and the complexity and illiquidity of investments.

He said: “These challenges can, however, be overcome and I strongly believe our fund-of-funds portfolio unlocks Africa’s investment opportunities and enables more capital to flow into the continent by using specialist fund managers with feet on the ground in Africa who have a strong knowledge of the local environment to manage the risks. It is also a diversified fund with widespread reach across asset types, vintages and geographies.”

The underlying funds cover infrastructure, private debt, private equity, real estate and agriculture.

This model of high impact investing is already making a tangible difference, bringing environmental protection and social uplift. As an example, one of the funds in the portfolio funded the construction of a bridge in Adidjan, Côte d’Ivoire. This €282m project connects the north and south of the city and carries 68,000 vehicles a day, saving an estimated 90,000 tonnes of carbon dioxide a year by reducing a four-hour round journey to just 30 minutes. The project has also created new, skilled jobs for the local population. For the investor, it has an expected return of 17-18%.

Another example is a juice manufacturer in Ethiopia. This vertically integrated project includes investing in fruit farming, juice production and transportation to ensure that there is both a local and export market. The projects have been developed under fair trade principles, providing local communities with opportunities to share in business success. It also employs new technology to minimise pressure on key local resources, such as water.

“These projects are having a significant social impact,” said Mr Roelofse. “Overall, our fund of funds has a track record of 15.5% return per annum and has had lower volatility than bonds over the past five years. We are now in the process of opening it up to third-party investors. Social impact investing is often viewed as being risky and lower yielding, this open-ended fund is up and running and is proving that good risk adjusted returns can be generated while also having positive impact.”

Photo - Chris Roelofse.

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