The question of how to put permanent and sustainable wealth back into the hands of ordinary black South Africans has troubled the country since the beginning of our democracy.
Hence, in seeking to revolutionise empowerment transactions, BayHill Capital has made use of the possibilities opened by stock exchange ZAR X to launch a groundbreaking new financial product on 24 April 2018: the BayHill Transformational Investment Portfolio (TIP).
TIP is an investment holding company which aims to harness the power of black savings to aid the development of black enterprises, support job creation and alleviate poverty, while simultaneously offering competitive returns to investors in a virtuous investment circle.
TIP will therefore target investments in listed companies via their BEE schemes, as well as non-traditional investments such as black industrialists, black-owned start-ups and private equity firms.
BayHill TIP Financial Director Lilitha Mahlati says that TIP is primed to act as a disruptor in the transformation landscape, allowing existing participants in the empowerment space to sustain and grow their wealth, encouraging the entry of new participants into financial markets and increasing inclusiveness in the investment landscape.
She notes that the decision to list TIP on ZAR X was central to its creation, allowing TIP to benefit from a shared culture of innovation and the creation of unique solutions.
The main advantage of listing on ZAR X has been the platform’s tech-driven approach to investment, allowing TIP to implement unique shareholding requirements to guarantee a permanent black majority shareholding, as well as enjoy numerous other benefits such as simplicity and low costs of trading.
“Listing on ZAR X means that TIP will enable grass-roots investors to play a direct role in the success and development of black businesses. Additionally, listing on a stock exchange opens the opportunity for institutional investors such as retirement funds to exercise their social investment responsibilities while fulfilling their fiduciary obligations to their own investors,” she adds
ZAR X Chief Executive Officer, Etienne Nel, believes that TIP’s listing marks a historic moment in the financial markets. “This is the first time that regulated financial markets players will combine their particular capabilities to deliver wealth creation potential that has never been available in this country before.
“The opportunities for individual and institutional investors are greatly enhanced, creating organic prospects whereby companies can achieve BEE in perpetuity and the economy can access sources of capital previously denied it.”
Unlocking the value of BEE schemes
Mahlati states that one of TIP’s key features is its structure as a permanent black capital investment vehicle, guaranteed by pre-trade listing rules which dictate that the company will retain a minimum 51% black shareholding at all times.
Taking advantage of ZAR X’s real-time shareholder registry, the sale of shares to non-compliant or white investors will be frozen should the company’s black shareholding fall to 51% until such time as this shareholding rises again.
She explains that this feature will enable TIP to access shares in blue-chip companies listed on other exchanges at a discount through their BEE schemes, unlocking the value of these schemes for a diverse pool of stakeholders rather than a well-connected few.
TIP’s position as a majority black-owned company also means that the company is able to offer its revolutionary “BEE swap” facility, whereby BEE scheme participants can swap their shares in BEE schemes for shares in TIP on a rand-for-rand basis.
“Two of the most significant benefits offered to investors from the BEE swap are flexibility as well as diversification. It affords individuals and organisations who currently participate in BEE schemes the opportunity to swap into TIP and thereby expose themselves to a more diversified portfolio with liquid shares, as opposed to being locked into a single investment until their scheme matures.”
“This also benefits the value chain of BEE schemes as TIP is able to offer itself as a long-term partner and a solution for the future of empowerment transactions.”
Using tech to drive financial inclusion
Mahlati emphasises that one of TIP’s central aims is to drive financial inclusion, “encouraging all black South Africans to participate in the market and dispelling the myth that trading in securities is reserved for a select few.”
“Sharing our vision, ZAR X has numerous advantages that will allow us to achieve this such as the low cost of trading, as well as the accessibility and technology behind the platform,” she observes.
For instance, in addition to allowing investors to view market data free of charge via their website, ZAR X is also poised to become the first stock exchange in Africa to offer a mobile trading app. The app will be launched by mid-year. This will mean that investors can buy and access TIP shares from anywhere, complementing TIP’s goal of encouraging greater economic participation.
Unlike other stock exchanges which may charge a flat fee for investing, ZAR X charges a standard 1.5% trading fee on the value of the amount invested, offering better value for small investors and breaking down barriers to entry.
Investors in ZAR X are additionally exempted from custodial fees, as trades are pre-funded, cleared and settled within 10 seconds.
This is not only more cost-effective, but offers the benefits of simplicity, transparency and liquidity, as investors in TIP can immediately buy and sell shares and realise their profits, driving greater financial empowerment.
“TIP was developed with the mindset of becoming a catalyst in the journey of transformation for the country,” she says.
“The beauty of listing on a platform such as ZAR X goes beyond its many innovative systems and benefits to a set of shared values, allowing us to launch a product that we believe will profoundly impact the way empowerment transactions are carried out in South Africa.”