Ninety One reveals details of its $600m Covid-19 recovery fund

Posted on: 24 July, 2020 at 1:59 PM

Investment manager Ninety One recently launched the Ninety One SA Recovery Fund, in association with Ethos Private Equity. The fund’s objective is to support the preservation of South Africa’s productive capacity and economic recovery from the effects of the Covid-19 pandemic, while seeking an attractive return for investors. Ninety One aims to raise a fund size of R10 billion ($597 million) from South African institutional investors.

For more details about the fund, Africa Private Equity News spoke to Nazmeera Moola, head of South African investments at Ninety One.

What will be the fund’s lifespan?

We are looking at a five-year fund with the potential for a two-year extension. It will be focused on addressing the Covid situation rather than being a permanent capital vehicle.

Describe your investment criteria.

The thesis of the fund is that there are companies that were viable going into Covid but will need financial support over the next three to 24 months. It is about bridging the V or U, or whatever shape the economic recovery may take. It’s not a turnaround fund for companies which had problematic business models or stressed balance sheets going into Covid; it’s about providing support for viable companies.

While the fund won’t be sector specific, we will focus on those sectors with the ability to return to pre-Covid levels in three to five years.

In a statement, Ninety One said the fund’s investments will be a combination of senior and subordinated debt, preferred equity, listed equity and private equity. What is the anticipated percentage mix between these asset classes?

I’m hesitant to provide specific numbers because we want to have some flexibility depending on how the situation develops. However, we anticipate the bulk of the investments to be debt of some form – everything from preferred equity to mezzanine to senior debt. At this stage, we think private equity will account for 10% of the fund and listed equity another 10% to 20%.

We realised we needed a flexible structure that could provide appropriate solutions to companies rather than offering only one type of funding.

What will be the responsibility of Ethos Private Equity in the fund?

Ninety One has strong capacity in private debt and listed equity. However, we realised we needed a bit more support in the private equity space. Ethos’ direct input will primarily focus on private equity investments. We also believe they can provide valuable input in the screening of transactions and then also in terms of working with the debt team on investments with equity upside.

How many investments will the fund make?

We are looking to raise R10 billion. The fund would make around 30 investments. The maximum exposure to a single investment will be 10% and the maximum sector exposure 35%.

By when will the fund make its first investments?

Currently, we are still fundraising. We are looking at a first close in late August or early September. The fundraising timeline has been somewhat delayed because of this massive rebound in equity markets, which makes some people think everything is okay. However, the rebound in equity markets is not completely reflective of the underlying economic conditions, which still remain very distressed and will result in many companies requiring additional capital.

Do you want to take a guess on when the lockdown in South Africa will be completely lifted?

Unfortunately I’m not an epidemiologist, which makes it very difficult to do such predictions – this is less about economics and more about the path of the virus.

Most economic forecasts around the world assume that by the end of the year economies will be functioning at the potential for pre-Covid levels, which means completely open. However, I have my doubts about the economic rebound, not necessarily because of regulatory reasons, but because of people’s changed behaviours.

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