Impact-driven investments key in times of macroeconomic turbulence

The private equity (PE) sector, much like its investment industry counterparts, has felt the impact of the tough macroeconomic climate. The past year has seen the convergence of geopolitical tensions abroad, the volatility of financial markets and heightened inflationary pressures. For some of the country’s leading retirement and pension funds, the turbulence of the times has warranted a renewed focus on private markets as a way of maximising the impact potential of their investments.

This was one of the key focal points in a panel discussion entitled A Glimpse into the LP Mindset Right Now in Light of the Global Macroeconomic Climate. The panel was part of the two-day programme at this year’s 2024 SAVCA PE Conference, hosted by The Southern African Venture Capital and Private Equity Association.

A commitment to driving societal change

Participating in the panel was Solly Matheba, Chairperson of the Tshwane Municipal Provident Fund. Adding to the conversation on the ability of PE investments to change lives and livelihoods, he explained that the point of departure for LPs like the Tshwane Municipal Provident Fund is to “make the money work for the members”.

“Our point of departure is simple: the money we allocate does not belong to the committee or even to the asset managers. It belongs to the members. So as an LP, we must ask ourselves how we can make it work for them. Unlike listed markets, PE investments give us the opportunity to address the unique needs of people on the ground – needs such as healthcare, sanitation and housing ownership.”

Although the priority is to make a difference in the lives of the fund’s 6 000 members, the real impact must be far-reaching. “An impact made at the level of villages, peri-urban and semi-rural areas is an impact made to South African society,” said Matheba.

He emphasised the importance of intentionality: a targeted and mandated approach to allocating to transformed asset managers, which provided a segue into the next point of discussion.

Transformation as a driving force of impact

For Mantuka Maisela, Chairperson of the Motor Industries Retirement Fund (MIRF), the past few years have exposed many inefficiencies on the ground, as well as the need to address issues such as service delivery and critical infrastructure. The macroeconomic challenges following the Covid-19 pandemic have exacerbated many of the issues faced by everyday South Africans.

In her opinion, a renewed focus on impact is crucial – and PE is equipped to do that, but the key to maximising that impact lies in transformation. As she argued, the financial sector has been largely unwelcoming to women, people of colour and people with disabilities. Exclusionary policies, however, represent a missed opportunity to tap into invaluable opportunities to allocate assets in a way that truly makes an impact.

It has been her experience that women fund managers – many of whom come from areas like the one in which she worked as a young person – share her passion for investing in the needs of under-serviced and overlooked communities. “When you allow a diverse group of people to raise and allocate capital, you increase the impact potential of those investments.

“As a fund, therefore, we have made a concerted effort to support women asset allocators who, in turn, are deeply invested in improving living conditions and meeting basic human needs in these communities. So far, they have not disappointed us,” she said.

Adding value where it matters most

Adding her perspective on the topic was panellist Grace Chauke, Investment Officer at the Transport Sector Retirement Fund (TSRF), who referred to impact-driven allocations as “investments into real assets”. Some of the country’s most pressing socioeconomic issues have become focal points for the TSRF – issues such as the record-high unemployment rate and the need for township development. As an LP, Chauke recognises the importance of investing in solutions that will add value to the lives of members.

For the TSRF, whose members are mostly truck drivers, the fund has looked specifically at the unique needs of their members. For example, the fund considered investments that could improve the working conditions for truck drivers, as well as places of rest along their journeys, as a way of addressing the high level of accidents on the long road.

Approaches such as these address both the financial aspects of PE investments, as well as the social factor, which is, in Chauke’s opinion, equally as important. PE also holds the added benefit of diversification.

The added benefit of diversification

Speaking to this point was Morula Digoamaye, Unlisted Investments Manager, at the Government Employees Pension Fund (GEPF). As he explained, the GEPF initially focused on infrastructure investments before heavily allocating to private equity, both of which proved beneficial even prior to the onset of Covid-19, amidst economic slowdowns in 2018 and 2019. However, given the evolving landscape, diversification has become increasingly imperative.

Most recently, the GEPF is expanding its portfolio to include private credit, which provides shorter-term yield opportunities and the potential for quicker self-liquidation. “This strategic approach underscores the importance of adapting investment strategies to mitigate risk and capitalise on emerging opportunities in uncertain times,” he said.

Constructive discussions to pave the way forward

Concluding the panel was Kgomotso Ramokala, Principal Officer of the Telkom Retirement Fund, who said that discussions such as these, around the need for impact – particularly at the level of the ‘second economy’ – alongside the commercial viability of investments, will become increasingly important.

In South Africa, the notion of the ‘second economy’ refers to a parallel economic structure that exists alongside the formal, regulated economy. This informal sector plays a significant role in the South African economy, particularly in terms of providing livelihoods for millions of people who are unable to access formal employment opportunities.

“If we do not invest in our second economy, we will not have a country to retire in. We must act now to protect our collective future, and PE has the tools we need to do that,” he said.