By Vishal Bheeroo
Claudia Manning is the Principal at South Africa (SA) SME Fund and was in Mauritius during the Pension Funds and Alternative Investment held at ITC, Balaclava on July 14-15. On Day One, she took part in the panel discussion themed, “Investing for Sustainable Impact-Innovative Financing for Development and Returns” where Platform Africa caught up with her where she shared her insightful comments on the role of pension funds across SMEs and the role of the fund in South Africa.
- How do you weigh opportunities offered by the Pension Fund and Alternative Assets to boost the SME Fund in terms of investment and growth?
The SME Fund was created by our investors constituted by South Africa’s 50 largest corporates together as the largest pension fund which is the PIC where our mandate was to support entrepreneurship and entrepreneurship in the country. So, we are in principle investing in South Africa rather than the rest of the continent although our fund managers do have some flexibility where it conducts a small percentage of business outside but the bulk investment remains in the country.
In terms of investment, the SME fund has been going for about five years from now and we really got going for about three and a half years agowhen a new CEO was brought in and a new team assembled around him alongside some of the old team. So, we have been actively committing the fund during the course of three and a half to 4 years.
We are effectively operating as a permanent capital vehicle and raising what we call Fund One which started five years ago, having all our capital committed upfront. We have been very fortunate in this regard and now what we have been doing in the last few years, with the fund being fully and effectively committed to deploying that fund and will disburse over probably the next two years as well as start getting some of our capital back from onwards. That’s Fund One.
We are also in the process of closing Fund 2 which is a semi-debt fund and in the process of raising Fund 3 which is a venture capital Fund Fund that we hope to close during the first quarter of 2023.
- 2. South Africa also boasts of the Asset Owners Forum holding a thriving USD 400 million pension fund industry. How can such a fund help to leverage growth spanning across sectors and what is your assessment on the industry’s future?
South Africa is in a very fortunate position where we have a very large pension fund industry, ranked among the top 10 in the world, estimated in terms of 5 trillion rands and USD 350 billion dollars which is a combination of some very large pension funds with the PIC being SA’s largest pension fund while at the same time there are a number of very large funds and some very small funds.
The difficulty lies in the fact that funds tend to operate independently of each other which of course, makes sense from fiduciary responsibility. The challenge is that small funds lack the capacity to consider alternative investment calling for a particular level of due diligence, then we are unable to diversify into new asset classes.
So, we think that the creation of the asset owners forum is a really valuable development in the sense that the principle of the forum’s establishment entails collaboration and cooperation among different pension funds.
The smaller pension funds would be able to leverage their experience and skills as well as the resources of the larger ones which would allow for the development of a more sustainable industry coupled with one that is better structured and functions in a better way to provide good returns for its investors.
- 3. What role can a thriving pension fund play in SME Fund to boost inclusiveness and cater to the smaller pension funds?
As I said, when you have a larger pension fund with very strong due diligence capacity, in-house experience, and the resources to hire external consultants they can do a much more substantial review of opportunities while making sensible and prudent investment decisions than the smaller ones obviously cannot do. An organisation like the asset owners provides a platform for collaboration to build a strong industry all around.
- 4. What are the key areas for SME investment in terms of opportunities to invest while at the same time ensuring pension funds are not at risk and preventing capital flights deemed as challenging?
Our view on the portfolio construction of pension funds is that ultimately, first and foremost their allocation must make sure that the pension fund can honor its obligations to its members and never at any point should that ever be compromised.
We believe that even while adhering to these principles, decisions can be made about making allocations that are more impactful without undermining financial returns armed with the conviction that investing in SMEs, whether early stage SMEs or later stage growth SMEs, play a really important role in the pension fund by helping to build an impactful and inclusive economy.
And, we believe that it can be done without compromising on returns and by investing on funds of funds like ours-SME Fund in ensuring profit diversification, proper governance coupled with investment decisions that are sensible, prudent and that will allow the pension fund in getting both a financial return as well as an impact return from the investment made.
