Sanlam Private Equity appoints Fernandez as CEO

Sanlam Private Equity (SPE), the private equity investment business within the Sanlam Group, today announced the
appointment of Cora Fernandez as chief executive officer. Fernandez will take up her new role in SPE's Hyde Park offices in Johannesburg on 1 July 2009.

With close to R5 billion of assets under management, Sanlam Private Equity is one of the largest private equity fund managers in South Africa, offering both a direct and fund-of-funds investment programme.

Fernandez has held the role of deputy CEO of SPE, heading up the Johannesburg branch of the business, since 1 February 2006. Current CEO, Pieter Kriel who co-founded the SPE business, will step down from this post he has held since February 2006, but will remain actively involved in an executive capacity as co-founder and senior partner.

Says Johan van der Merwe, CEO of Sanlam's Investments cluster: "The move is the implementation of an agreement made between Pieter and Cora, in conjunction with myself, in 2006 as part of SPE and Sanlam Investments'
succession planning strategy. During this time, Pieter has been actively committed to supporting Cora's development while establishing SPE as a key player in the private equity environment."

In the past three years, Fernandez has demonstrated that she has the passion for private equity, the business acumen and people leadership capabilities required for success in the private equity environment. Fernandez is a qualified chartered accountant and served her articles with KPMG in Johannesburg, after obtaining her BCom degree from the University of Cape Town, and a BCompt Honours degree from the University of South Africa. Fernandez entered the private equity industry in 2001,
and in her role as deputy CEO at SPE has been responsible for deal origination, investor relations, investment strategy and portfolio management, as well as manager of SPE's Johannesburg branch.

Fernandez holds many leadership positions in the private equity arena, and is currently chairperson of the South African Venture Capital and Private Equity Association (SAVCA), is a member of the South African Institute of Chartered Accountants (SAICA) and the Association of Black Securities and Investment Professionals (ABSIP). She also currently serves on the Investment Committee of the National Empowerment Fund (NEF) and on the boards of eight companies where SPE owns an interest.

Since joining Sanlam's investment division in 1987, Kriel's contribution to the Sanlam Group has been immeasurable. Kriel has over 21 years of experience in investment management, covering various roles including financial control, compliance, structured products, equity underwriting, portfolio management, the structuring and management of black economic empowerment investments and finally private equity.

Kriel currently serves as a non-executive director on the boards of a number of empowerment and other unlisted companies, and is a member of a number of investment committees and governing and advisory boards of private equity and venture capital funds.

During his leadership of SPE, Kriel recruited a team of top dealmakers and created a strong base for future growth of the business. Kriel fully supports the appointment of Fernandez, saying: "I am pleased to see the plans Cora and I made for SPE come to fruition. I remain committed to SPE and look forward to relinquishing my management duties in order to focus my innovative and entrepreneurial acumen and experience to further grow the business".

Kriel will continue to support Fernandez in her new role and will play a pivotal role in the strategic leadership of the business. Says Van der Merwe: "Pieter is a talented entrepreneur and has pioneered many new initiatives in the Sanlam Group. This move frees him up to apply entrepreneurial thinking to new business ideas and products, and to more actively participate in the investment decision making of SPE. He has established an excellent team and I am confident in their ability to
implement the strategic plans of SPE going forward."

"Kriel represents SPE on many internal and external bodies, such as fund advisory boards, and will continue to drive transformation and mentor skills transfer within the investments businesses", adds Van der Merwe.

Fernandez has played a central role in building the SPE business alongside Kriel, and has gained a reputation as a respected and credible businessperson well placed to position the SPE business as one of the preeminent players in the industry.

"Private equity is my passion and becoming the CEO of SPE is the culmination of many years of hard work alongside Pieter, who has been a skilled mentor to me and other members of the team. I look forward to working alongside Pieter to grow SPE into a formidable player in the private equity space," concludes Fernandez.

Venture Capital - Opportunities in education

One of the sectors which seems to be seeing a bit of interest from investors again is the South African education sector - specifically in the mainstream and remedial schooling space.

I was fortunate enough to get an invite down to the PSG Annual General Meeting in Stellenbosch this week and it was actually one of the sectors that their investment team were chatting about and one of the places where they are putting their money into.

One of the statistics that they rolled out in their presentation was that at the moment, only 2.5% of South Africans are enrolled in private education institutions - this despite the explosion in new schools over the last few years.

Their opinion is that this figure is likely to continue to grow as the government school sector comes under increasing pressure and numbers in schools continue to expand.

(Bear in mind when reading this post that one of the real tricks in developing an education offering is an ability to develop and manage scale - i.e. what is the "critical mass" that you need to achieve to make a profitable offering).

A couple of areas where I think there might be some promising opportunities for
investors and small business owners to look at are:

• Remedial school offerings - The number of small remedial school offerings in the last few years has exploded. My wife is very actively involved in this part of the education sector and she sees the trend continuing as people seek specialist care for children with remedial and special education needs.

• E-learning - This is without question one of the most promising but uncertain parts of the South African education landscape. Electronic learning has started to take roots in the universities and one can expect this to continue to evolve as it becomes a more mainstream education tool at all levels

• Middle level income primary and high-school offerings - Private education continues to be viewed as a tool for "the rich" but more and more parents in the middle-income bracket are making sacrifices for their kids to receive a higher quality education. I know that there are a couple of schools in this space due to come online over the next few years and might be another area to explore
• Basic financial eduction - This is one of the areas which our sideline business has been developing content for the last few years. The demand for basic financial education for your workforce has been further highlighted by the current financial and economic crisis.

I think there are some genuine opportunities in education in South Africa for investors who can get their heads around the sector.

Source: Bad Entrepreneur blog

SME resource

For SME's looking for a nice resource to assist them in getting started up, you should check out the Small Capital website.

"Partnered by the country’s top providers of three core business services – Standard Bank, MTN and Microsoft – Small Capital shares expert knowledge of the local market and business environment, while providing access to products, services and tools that will help you to turn your small business of today into the powerhouse of tomorrow."

Standard Bank and Microsoft seem to be very active in the SME space at the moment - well done to both these teams for helping out local entrepreneurs.

Evolution One Fund secures ZAR 100 million from first African investor

The Board of Directors of the African Development Bank Group (AfDB) approved a ZAR 100 Million equity investment in the Evolution One Fund on Wednesday 27th May 2009, the first specialised private equity fund focused on the acceleration and deployment of clean energy and sustainable technologies across southern Africa to mitigate the effects of climate change on the Continent. Evolution One Fund has already raised USD54m in cornerstone capital commitments from four international investors and the AfDB investment will substantively augment this capital pool.

The Evolution One Fund will make equity and equity-related investments in sustainable projects and companies with the aim of not only achieving carbon reductions but also ensuring the sound environmental, social and economic performance of these investments. The Fund will seek to invest predominantly in growth-phase businesses, particularly in eight high-growth sectors namely clean energy/energy efficiency (up to 50% of its investments), efficient and clean manufacturing processes and technologies (“cleaner production”), air quality and emissions control, water quality and management, waste management, agribusiness and forestry, natural products, organics and natural health and environmental real estate. South Africa will account for 60-75% of the Fund’s overall investments, while up to 25-40% will be earmarked for all other Southern African Development Community (SADC) countries.

Climate change is a crosscutting theme for the African Development Bank with a focus on supporting clean energy investments and infrastructure, as set out in the Bank’s Medium Term Strategy 2008-2012, as well as its Clean Energy Investment Framework (CEIF), which underscores the Bank Group’s increased support to clean energy projects. The Evolution One Fund will be the Bank’s first investment in a fund with a specific focus on clean energy and technology investments. The investment therefore supports an innovative vehicle that will boost economic activity in this emerging field, and contribute to the development of sustainable private sector enterprises.

Reinet

I had been meaning to blog about Reinet earlier this week and then got swamped with other stuff.

Upfront I need to remind you that my primary reason for buying shares in private equity firm Reinet was a desire to get some access to the Rupert family's "deal-flow" and their ability to spot good investment opportunities and generate a return for shareholders.

I got in quite cheaply so I am up a few bucks on this investment but it was interesting to note their comments in their recent results announcement.

One of the big concerns I had was that Reinet would become something of a "value trap" along the lines of Venfin where it took a long time for shareholders to get anything significant in the form of dividends or realised profits from investments.

Bear in mind that Reinet enjoys handy "cash-flow" from its investment in British American Tobacco so there should be no reason why shareholders shouldn't get a piece of this.

I thought it was quite encouraging then that Reinet mentioned that dividends were on the cards in the coming financial years.

Groundbreaking social investment fund launched

Investors in market-based solutions to social problems can now receive a financial return on their investment, rather than merely a measure of social equity. Believed to be the first funds of their kind in the world, Heart Social Investments are launched today.

Heart Social Investment funds are built around a concept called Blended Value Proposition, offering investors both a financial and social return on investment. On the other hand, the Traditional Value Proposition that most investments are built around, yields economic returns and no social benefit, and traditional private or corporate giving (philanthropy) yields social value with no financial benefit. This means that going forward corporate, private and foundation giving (philanthropy) could earn a financial return, on top of the expected social impact.

The Blended Value Proposition funds achieve the financial (as well as social) return by investing in social enterprises. The core objective of a social enterprise is to promote social and/or environmental gain and it does this through a trade that generates income. As such, there is no difference between them and any other business, as long as social enterprises are sustainable and making money. And social enterprises are therefore not dependent on ongoing handouts, like most NGOs, to have a social / environmental impact.

Heart of Healing, from today re-branded simply as Heart, was established in Cape Town by Peter Shrimpton, an ex-stockbroker and a man who understands not only money markets and commerce but also the need to make social enterprises and NGOs sustainable. Peter has spent the last five years working with NGOs and creating and incubating social enterprises that needed a leg up in terms of the requisite commercial input and counsel.

The business of giving and, in particular, charity has evolved. Peter explains: "It is an outmoded concept to continue simply giving to an organisation - charities now need to be sustainable, they need to generate income through trade."

Social enterprises are fast being lauded internationally as the way to offer a sustainable solution to the world's increasing social and environmental challenges. There are currently no figures tracking the number of social enterprises in South Africa but elsewhere in the world, the market is mushrooming. In the UK there are around 55 000 social enterprises and in the US, where there are around 1.2 million non-profit corporations, the market generated $672 billion last year.

In South Africa, the CSI (corporate social investment) market is valued at around R4-billion and the private donor market is estimated at around R17-billion. As donor fatigue increasingly prevails, it is becoming critical to find ways for people to receive a return on their generosity and on their investment. Now that charities and NGOs - social enterprises - are beginning to earn money, the market can evolve ... into funds like the Heart funds - blended value proposition funds - and so that the market can attract more investment in the future.

"This formalises, in financial terms, what Heart has been doing for some time now", says Peter. "We're taking traditional financial investment models and applying them to the social enterprise space."

Heart has created a holding company for each of the funds. The aim of the funds is to give investors the potential of earning a 10% return. Each Fund is established as a PTY Ltd legal entity by Heart with an investment committee. The central objective of the Funds will be to invest in social enterprises that are helping to bring about positive social and environmental change.

Three Blended Value Proposition Funds are being launched, to incubate, develop and establish social enterprises (just like any other business) at critical stages of their development. For the Heart Seed Fund, a closed fund, the minimum investment for a maximum of 50 investors is R20 000 to raise R1-million. The objective is to incubate a developmental project from concept to market readiness.

Heart aims to raise R5-million for the Heart Venture Fund with two lots of R50 0000 each over two years for a maximum of 50 investors. The focus is to take the social enterprise to market, after completing the Heart Seed Fund incubation process.

And for the Heart Capital Fund, the aim is to raise R30-million over three years - again with R50 000 lots over three years for a maximum of 200 investors. The objective is to fully capacitate the social enterprise.

"In South Africa's financial market where trillions of rands are traded, R36-million is chickenfeed", says Peter, "but we want to prove that it works. We're not going into the financial market to challenge the industry. We're giving them an option they don't have at the moment ... we are challenging the donor market."

Peter adds: "We need to create a capital structure that can drive positive social change. Without it, we will not be able to begin addressing the huge and daunting number of social problems we face right now. Investment in social projects and social enterprises must now earn a return so that the business of giving can be more sustainable."

Heart Social Investments are different from other investment funds linked to a social / environmental cause, because they invest in social enterprises, not corporates being socially responsible.

Find out more information here - http://www.heartofhealing.co.za/index.php?option=com_content&task=view&id=566&Itemid=336

Private equity shows growth despite economic down turn

SAVCA and KPMG today released the annual Industry Performance Survey reporting on the 2008 calendar year. The survey shows that South Africa’s private equity industry breached the R100 billion mark for the first time during 2008, despite the global economic meltdown and a slowdown in local merger and acquisition activity. In addition, R29.2 billion in commitments remain undrawn and can be used for further investment.

Growth in BEE private equity deals grew 38.1 per cent from R11.8 billion in 2007 to R16.3 billion in 2008.

These are some of the findings of a joint KPMG and SAVCA (South African Venture Capital and Private Equity Association) survey into the private equity sector released today.

Private equity has attracted foreign direct investment (FDI) into South Africa, amounting to R23bn over the last three years.

Taking into account the absence of the large public-to-private deals, as seen in 2007 (for example: Edcon, Alexander Forbes, Primedia and Consol), it was no surprise to see private equity investments falling in 2008 from R26.1bn in 2007 to R23.1bn in 2008. Fundraising also decreased from R15.4bn in 2007 to R7.2bn in 2008.

“These figures are a positive reflection on the achievements of the SA private equity industry,” says Warren Watkins, KPMG’s head of private equity markets for Africa. “Although SA is not immune to developments in the global economy, we currently appear to be better off than other private equity markets. This could be due to SA’s ongoing infrastructure spend and limited “credit crunch” exposure.”

The survey also found that funds valued at R68.6 billion were under the management of captives-government or entities that are either black owned, empowered or influenced. This is up 16.3 per cent from R59 billion in 2007.

The private equity sector maintained a lingering exuberance from 2007 through the first half of 2008 and then became more subdued in the second half. The net result was overall growth of 19.5% on R86.3 billion held at December 2007 to R103.1bn.

There is reason for cautious optimism for South Africa, says Watkins, in particular with respect to the prospect of lower interest rates arising during 2010, and the forthcoming FIFA 2010 Soccer World Cup.

“The scale of activity in our industry continues to outperform most of the major international economies, which bodes well for South Africa’s government stated growth targets, as local and international research confirms that private equity investment is a key driver of entrepreneurial activity and growth in any economy,” says SAVCA executive officer J P Fourie.

The survey has found that South Africa’s funds under management (excluding undrawn commitments) relative to GDP of 3.2% was higher than 2007 and again greater than the global average of 2.7%.

This is the tenth year in which KPMG and SAVCA have produced the private equity survey. Funds under management were R30.7 billion in 1999, with R103.1 billion reported in the current survey. This represents a 14.4% compound annual growth rate.

For the full survey, visit www.kpmg.com