By: Mergence Investment Managers and Third Way Investment Partners
Two established, women-led black fund managers point the way for cleaner energy post-COVID
Mergence Investment Managers and Third Way Investment Partners have invested R225m each to refinance a major renewable energy plant in a remote area of South Africa. The project cannot yet be named for confidentiality reasons.
Both parties to the transaction have strong track records in impact and infrastructure investing on behalf of institutional investors, mainly retirement funds whose long-term liabilities are a perfect match for long-term infrastructure investment, providing an inflation-linked return, whilst investing in the local economy .
The renewable energy and infrastructure funds of both Mergence and Third Way have achieved returns in excess of the CPI + 4 hurdle on their infrastructure funds.
The private sector will play a major part in financing domestic infrastructure, needed in SA more than ever to accelerate growth following the devastating economic aftermath of the Lockdown 1 of the COVID-19 pandemic. Asset manager support will bolster the government’s R100 bn package to stimulate infrastructure development.
Fulufhelo Makwetla, Founder and Managing Director of Third Way Investment Partners, says: We are excited at the opportunity to collaborate with Mergence to co-invest into the struggling South African economy. We still have dry powder close to R1bn and are looking for opportunities to invest, fast tracked subsequent rounds of South Africa’s Renewable Energy Independent Power Producers Procurement Programme (REIPPP) will be a welcomed investment opportunity.”
Yoza Jekwa, Joint Managing Director of Mergence Investment Managers, says: “The vital role of asset managers in facilitating responsible investing of pensioner retirement saving into viable infrastructure assets is multi-layered and cannot be under-estimated. The asset manager has a fiduciary responsibility to safeguard the monies it invests on behalf of pension funds and their beneficiaries through sourcing, vetting and structuring infrastructure deals, as well as stringent continued oversight of project management.” (See fiduciary responsibilities under Notes to Editors below).
Mark van Wyk, Head: Infrastructure and Developmental Investments at Mergence Investment Managers, says: “The refinancing or secondary investments in an existing project indicates a positive maturation of the renewable energy market in that transactions between project lenders can be executed. It means that the energy projects can be sustained, jobs retained and energy continued to be dispatched into the grid.”
Mergence has raised R1,7 bn for its renewable energy fund, and invested in a total of 14 renewable energy project across both wind and solar, 11 projects of which have been operational for some years. Mergence has raised a total of R3 bn across other sectors such as affordable housing, ICT, water and sanitation, as well as renewable energy. An estimated 17,000 jobs have been impacted, often in rural and remote parts of South Africa.
Third Way Investment Partners has raised R2,5bn for its Infrastructure Debt Fund, investing in over 30 projects in the poorest of South Africa’s provinces including Limpopo, Northern Cape and Eastern Cape, and impacting the lives of communities which are frequently are excluded from such opportunities.
Mergence Investment Managers was an initial signatory to the Principles for Responsible Investment (PRI) supported by the United Nations, as well as an initial signatory to the Code for Responsible investing in South Africa (CRISA), chaired by Third Way co-founder John Oliphant.
Mergence Investment Managers has also been a trailblazer in ESG-led impact investing as far back as 2010, long before it became ‘trendy’. The company produces an annual impact report quantifying the social and environment impact of its investments. The report also includes investment case studies ranging from renewable energy, to low-cost housing, taxi finance and a medicinal cannabis project in Lesotho (Mergence was the first institutional fund manager in Africa to invest in such a project).
Third Way has made a name for itself in developmental and infrastructure investing on behalf of retirement funds, given the company’s experience at the Government Employees Pension Fund (GEPF), where they implemented the GEPF’s developmental investment strategy with a focus on economic and social infrastructure, greening the economy and job creation through investments in small and medium enterprises with a focus on transformation.