JOB CREATION: Editorials: October 2019 / January 2020

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PPP
at work

All good things for mid-size companies’ growth and
pension funds’ investments.

Against the negativity over unemployment and scepticism over the preparedness to counter it is the Jobs Fund, a solid testimony to groundwork in public-private partnership (PPP). There’s also a win-win for retirement funds as a channel to invest in the real economy, specifically for job creation.

Since it was established eight years ago by government, which set aside R9bn, two of the most prominent asset managers to have given it legs are 27four and Ashburton. Both have progress to report.

In a deal that will see the Jobs Fund contribute up to R200m in 27four’s Black Business Growth Fund, the government grant is expected to help the fund catalyse more than R5bn in capital for mid-size SA companies looking to grow. BBGF head Rory Ord estimates that 3 000 to 4 000 jobs will be created over the next seven years, and double this number over the fund’s life.

All the capital committed to the fund will be invested by six to eight black-owned asset management firms for private-equity transactions in 40 to 60 unlisted companies. “We have a proven job-creation channel in the form of mid-market private equity,” says Ord. “While pension funds have been slow to allocate capital, the Jobs Fund grant largely de-risks these investments.”

That the grant provides first-loss capital to the BBGF should encourage pension funds to invest with confidence, he believes. The fund pools the capital of investors, provides them with access to a number of managers as well as a broadly-diversified underlying investment portfolio, then manages the selection and monitoring process in the allocations of capital to black managers.

The selected mid-size companies would already have been assessed as sustainable but in need of capital to grow. They’d typically have an annual turnover of R100m to R500m. The investment goal is to triple their respective sizes over five to seven years, says Ord. After the Jobs Fund investment period is over – five years of investment and two years of post-investment monitoring – the BBGF will remain involved.

“Our fund life is actually 12 years,” he adds. “Much of our input will be strategic, such as assistance with identifying acquisition targets and accessing new markets. So far, many of these companies don’t have the levels of governance and systems to position themselves for growth.”

There are strict investment criteria. For example, a significant amount of funding must be employed into labour-intensive sectors such as manufacturing and fast-moving consumer goods. In addition, where companies are at present short on B-BBEE credentials, they’ll need to transform in terms of ownership, management and procurement.

Although compliance with the Financial Sector Code is still voluntary for retirement funds, they’d enjoy the bonanza of scorecard points depending on how their investments are made.

Success of the Jobs Fund is already demonstrable. Ashburton Investments is now into its second ‘Credit Enhanced Fund’.

Its first fund included investments in 12 innovative job-creating businesses. Against its target to create 9 635 jobs, it created 10 222 since inception in February 2015. The second fund, launched last July, includes five businesses with a target to create 4 200 new jobs.

“We count only permanent or sustainable jobs that can be verified and that qualify as ‘decent’ employment,” points out Ashburton head of specialised credit Heather Jackson.