Investment firm Novare today announced the launch of its latest multi-manager fund offering – the Novare Infrastructure Balanced Fund. “As there is a material need for infrastructure investment in South Africa, it holds immense growth opportunities. Novare aims to be at the forefront of this development and share these opportunities with investors,” says Eugene Visagie, head of Hedge Fund Investments at Novare Investments.
The fund is a multi-manager fund and the objective is to expose investors to infrastructure opportunities and provide capital appreciation in the medium to long term.
Infrastructure, better defined as the physical, organisational structures and facilities needed for the successful operation of a society or enterprise, tends to have a low correlation to other asset classes, which means exposure to the asset class is a good diversifier within an investment portfolio.
“Although a lot South African infrastructure companies are state-owned, we are seeing an increased appetite from private companies, particularly those who have assisted Eskom with their Renewable Energy Independent Power Producer Procurement. We have observed an increase in these private-private partnerships (PPP) which we believe offers a great opportunity for investors,” says Visagie.
Previously, infrastructure assets were only available to a few distinguished investors as access was mostly gained through illiquid vehicles. The Novare Balanced Infrastructure fund aims to give retail investors access to these prospects. “Infrastructure tends to have a yield component because it tends to sit in regulated industries with mostly inflexible user demand – this does, however, act as a hedge against inflation and in addition, the assets also have growth potential,” Visagie explains.
Globally, developed countries are experiencing ageing and deteriorating infrastructure that is in need of significant repair, replacement or upgrade. Fiscal constraints and low growth rates in many developed economies could well reduce government infrastructure spending in future, creating a compelling opportunity for private capital investment.
Developing markets, on the other hand, need to build new infrastructure, cater to a growing population and continuously improve the standard of living. Economic growth and urbanisation trends, especially in emerging markets, support the development and accelerating growth of infrastructure assets.
Funding for infrastructure development has been further restricted by the introduction of bank regulations, in particular, Basel III which has seen banks not being able to participate in long-term projects as before. “Essentially this is a sign that funding has dried up and consequently, alternative finance has to be sourced. With the gap in funding, the government has asked the private sector to get involved, creating huge opportunities for private investors to get involved in these assets,” says Visagie.
Visagie continues by explaining that government initiatives are prioritising infrastructure development, which means PPP agreements will become more important than ever and capital markets can facilitate the financing.
Some industry experts have eluded that SA infrastructure is more likely to evolve like the SAPY index. According to Visagie, more infrastructure vehicles are being listed and, in future, there is a likelihood of an increase in liquidity of the listed instruments.
The Novare Infrastructure Balanced Fund aims to outperform CPI + 3% over a rolling five-year period. The fund is suitable for investors with a longer-term investment horizon and ideal for those looking for moderate returns, but who are also mindful of capital preservation.