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Futuregrowth’s Structured Empowerment Fund (SEF), the pioneer of South Africa’s BEE funding vehicles, has achieved annualised returns of 18.76% over its 12-year lifespan. Institutional investors who stayed with the fund since inception have seen their annualised return beat not only the benchmark CPI+8% of 13.95%, but also the ALSI which returned 16.27% over the same period.
In 1995, when the fund was launched, BEE equity funding was an unknown area. Within 18 months of inception the SEF had attracted investor contributions of more than R1bn and after 30 months it held assets valued at R1.5bn. Funders included those who were serious about driving empowerment within the industry and others hoping to harness the profits of niche financial services, small IT and even education and staffing companies which at the time believed a BEE partner would be their ticket to success.The SEF funded 46 different special purpose vehicles (SPVs) and eight direct equity investments in emerging empowerment groups. Of these, 28 different empowerment groups were direct beneficiaries of funding, empowering more than 100 emerging black entrepreneurs and indirectly supporting a broad base of many thousands of BEE beneficiaries.
According to James Howard, the portfolio manager at Futuregrowth Asset Management, had it not been for this funding and the continued support of the institutional clients of Futuregrowth that invested under this BEE mandate, many of the BEE personalities and companies that are taking leading positions in the South African economy today would not have been in a position to benefit from the second and subsequent rounds of empowerment deals that are now being driven by the charters.
It was not all positive, however. “Money was definitely lost along the way,” said Howard. “The funding of some BEE groups into notorious disasters, such as Macmed and Leisurenet, made headline news and soured investors’ appetite for SPVs and BEE funding.”
But on the whole, much was learned in the initial years that has resulted in far more robust funding and participative deal structures, he said. “It wasn't easy but if investors, asset managers and the BEE companies were prepared to get their hands dirty and stay involved for the long haul, there was money to be made."
Windfalls initiated by Futuregrowth funding included the BEE Consortium funded into Datatec that dissolved itself after 18 months. This resulted in the early unwinding of the SPV at more than R100 per Datatec share, shortly before the share crashed to less than R10 on the JSE.
Since Futuregrowth Asset Management took over management of the SEF and subsequently closed it to new investments in February 2001, the unwinding of the complex funding structures and subsequent disposal of the underlying assets began.
Active management and in certain cases taking control of business operations, was necessary. Every angle, no matter how complex, was pursued in order to extract full value from each asset during the winding up process. Litigation, in certain specific cases, resulted in additional shares being awarded to the Fund.
Regular payments of investors’ capital made quarterly, and more recently, annually, resulted in the fund achieving a healthy internal rate of return (IRR) of 26% over the liquidation period with the final repayment made to unit holders in January this year.
“We were particularly pleased that only less than 10% of the institutions that invested in the fund in the first two years withdrew their investments at any stage prior to the fund’s closure,” said Howard.
“Futuregrowth was in it for the long term. By staying focused and true to the BEE mandate and doing the work, you get results. You don’t just dump assets or walk away, which is a mistake some made.”
Issued by: HWB Communications
Contact: Caroline Swift
Tel: 021 462 0416
Cell: 084 303 6777
On behalf of: Futuregrowth Asset Management
Contact: Michele Usher
Head of Marketing
Tel: 021 659 5459
