¶ Intro / Opening
Welcome today's a really interesting episode for me because we're, we're at how investment managers and these fund managers who you know, the kind of big pools of money both in South Africa and around the world. How they can impact the world and how they impact you know, big trends that, that maybe we don't always think about as investors. You know, a lot of the time when we are looking at. At shares, we're looking at a particular share or a particular or a particular index.
It doesn't, you know, it doesn't really matter what the instrument is. And we're always wondering, you know, how do I, if I buy my, you know, top 40 index, or I buy a general equity unitrust, how does that help me If I want to kind of create jobs or I want to put new energy into the world or change the way that companies are treating their staff, or, you know, governments are running businesses, et cetera. so you know, I thought it's, it's an important topic.
I'm, I'm by no means an expert on, on this, so I needed to, to bring in an expert. And, and so glad to, to have Conway Williams, is he is a fund manager and he heads up the the the, funds that do port portfolio investments into infrastructure. And, and I'm gonna let Conway explain what that means. but Conway, thanks so much for joining.
I thank you for inviting me into the show this morning and good morning to everyone.
So, perhaps just to give us a bit of background on, on, on what you do and how that kind of fits into, into the
So I think the very simple answer in terms of what we do is we provide capital to various projects that are either infrastructure related. For normal capital type projects or just general funding to your normal man, your normal company on the, that, that, that actually requires capital or funding for various opportunities for various projects or just for general purposes.
So if you're thinking just on the infrastructure side we could provide funding to wind farms, to solar farms, to SMEs, and we do that all through our various infrastructure funds that we.
I mean, just very basically for, for someone like me, I'm looking at this and I'm saying, you know, we're living with stage four, five or six kind of load shedding and, and on the other side, the, you you're sitting there and well you know, as, as, as someone who looks after money for individuals and pension funds and, and big actually that might represent. Both a solution for a, for a country, but but also an investment opportunity.
so, so that's quite two. And I think while blackouts make electricity supply and usage very topical, we also provide financing to other areas that actually contribute meaningfully to the economy. So I know the first question was on. Escom and with with Escom can provide us with electricity. What we are doing in that regard is providing finance under the South African Reap Program, which is a government strategic investment program to allow renewable energy to be provided to the grid.
Obviously there are pros and cons with every sort of project or or process, but the positive here is that we are using natural resources as opposed to carbon intensive type resources, getting use, using the sun, using the wind to actually create electricity, and then over time let that become a more meaningful contributor to what you and I. on a daily basis At this stage, obviously it's not as meaningful as it should be, but we are hoping that through our contribution and our pooling of private
sector money and then working very closely with government, that we can actually move to a COP 26 27 type approach. We have more renewable energy as a contribution to our energy usage process.
I mean, for me as, as someone sitting on the sidelines, how would I access an investment like that? You know, when you, when you a, a portfolio manager, so that tells me that you're, you're managing a fund. Is is it something I can actually invest in is a mechanism for me
we, we have created mechanisms for the man in the street to invest in our infrastructure projects or products that ultimately invest in infrastructure projects. And we also do that for people, even though you might not know that we are doing it. So for example, we access institutional money. So whether you've got a retirement savings, a pension fund, or a Providence fund, a portion was most likely going to be allocated to infrastructure investing.
And I think if, if you want to understand why that happens, it's just a natural asset liability match. You need to retire in 20, 30, 40 years. These projects are 10, 20, 30, 40 years in nature and you get a project that actually contributes meaningfully to the economy and the economic growth of the South African. So in, so by you investing in our products and then us investing in these projects, that's just a perfect match.
You get a street that doesn't have bottles, you get tolls that work, streets that work. You get lighting, you get electricity, you get SMM E that are provided with finance and they can't actually even access finance. We fill that gap and that is a great I suppose match when you, if you're looking long term, if you want to understand. One day you can retire comfortably. One day your children or your children's children can actually live in a better country.
These products, and ultimately the projects that we invest in, in do that for you and you, without you even knowing it. You probably invested in various projects already. You just have to ask your, I suppose, your trustee or your manager or your personal advisor, what you've invested in, and you'll see that the user infrastructure angle or ting to your portfolio.
So, so there, there are two things that I really want to touch on around this, is one you've mentioned SMEs a few times. I wanna come into that and, and then also around job creation. So, so we're gonna come to those now, but, but one of your other jobs, cuz you I you you, you, you don't like being bored is you're So the reason why I'm mentioning that is when you're, when you're.
Doing these investments and, and you're, I mean, I guess the head of credit is paid to look at what could go wrong and then to try and manage those risks so that that, that you, you and your investors don't lose money. So, so when you're saying, you know, that, that you know, a 30 year time horizon on project and, and then creating investments that can invest, you know, for that 30 year time horizon. Th this is not charity, right? This is actually, ultimately it's for the good of the country.
But for the investor, they're, they're there to make money and they're going to make money while helping
So I think that's a very important thing that point that you just touched on is that we apply a responsible investing lanes to whatever we do, whether it is for our infrastructure funds, our clean energy funds, our high yield credit funds, or our more vanilla type funds. Responsible investing is at the heart of what we do. So what does that mean? It's simply that we have a qualitative understanding of.
A measurement of risk and a quantitative, very importantly, VRAs, a quantitative assessment of actual cash flows and the likes. We provide capital to entities in a manner that combines quantitative and qualitative assessments. That's very, very important.
And very importantly, we make sure that we earn commercial returns for our clients while actually investing in various projects, be it a info project or a normal vanilla project, which again, definitions mean that we actually can compartmentalize that too. But if we just talk on infrastructure investing or we talk on sme or even the wind and solar example that we chatted about, right, a couple of seconds. These have long-term benefits for the economy for the man on the street.
We are able to do so without compromising returns, and we've been able to prove that through all of our products or our E S G or our or responsible investing tech products that we have been managing for quite some time now. We don't compromise returns, but we make a meaningful impact. It's not our job to be a de developmental financer. We want to take care of our client needs, and one of our client needs is to make sure that they can retire.
The other is that they can make a meaningful impact when they invest in this project. So again, a perfect marriage of two, making an impact and earning a return so you can retire safely.
And I think that's an important you know, we're, we're not all saying that when, you know, as, as an end investor, like myself, I'm not there to make money at any cost. I, I, I don't want to destroy the environment. I, I don't want funding you know, the future generations of, of tobacco smokers or whatever the deal is of polluters, whatever it is. But at the same. I do need to retire one day and I do need to live off my investments and I do need to grow my capital.
And so, so what I'm, I'm hearing from you this is a a combination of the two. It's or that this is not, you can for the good of the world and, and not make money, or you can only make money and then you're destroying the world. There, there is an alternative, which is you can do things which align with your personal values, if, if these are your personal values and make money.
Yes, that is completely because you are creating 5,000 jobs, but it does count to your E S G score, which ultimately over time means you get a better funding cost from us, which then means money to be made by shareholders. But again, we're contributing across the entire value chain to make sure that we provide capital, which is not always available for players to obtain, but we do it in a responsible. and we get paid for the risky type cause they ease risk in this.
We're not buying government bonds here. We're investing in real projects that have risk.
and and anyone that's bought a Greek government bond over the last 50 years would say that that's very risky. so look at at at two I'm gonna call it business. And, and so, you know, it's, it's kind of a drum beat that our politicians love to beat is to say, you this, yes we, you know, we need to get involved in, in small business and small business needs to grow, but that actually doesn't mean anything, as far as I'm concerned, un until there is capital being. To the small businesses.
I mean, I kind of, I don't wanna put words in your mouth, but it sounds to me like you're saying part of the mandate of where you are is you can actually find mechanisms to invest and fund small businesses.
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Yep, that is correct. I'm just gonna take you one step back and I'm gonna give you a bit of research that we've done. We, we are at Data House after all. So our research shows that. there are probably about just under 3 million SMEs out there, but roughly 40% of that is considered formal. So there's a massive, informal market of SMEs. We try to play in more of the formal space.
Two thirds of these 3 million are probably owner run, and they, each one of these create between one and 10 jobs, roughly 50% paid off. If we go back 10, 15 years, the contribution by the SMM East Coast to the South African economy was roughly 10%. It is now shut up to about 40. So you can understand the impact that SMEs
¶ (Cont.) Beyond Returns: The Social and Environmental Impact of Investing
make, not only from a growth perspective, which is the numbers that you see on the sheet at the end of the day, but also in terms of employment. Our employment stats, if we are looking at official or unofficial, it is horrendous. We're looking at 35, 40, even 50%. If you're looking at the youth unemployment, two out of every three. Youth classified in the 18 to 35 space is unemployed, 60 70% of youth unemployment.
So the S M E space in its own as a massive potential to bridge the gap in terms of what government needs to happen to move from a unemployment type state to unemployed state to change al Genco efficient from 60, 60, 70% to 40 50. So if you can understand what the importance of the sector is, you can understand why we are looking.
And again, another rationale for us looking at it is that the formal channels that provide capital to the S M M E space can't take this risk or not willing to take this type of risk, whereas we are tad but more flexible. I won't say that, that the other formal sectors aren't, but we can look through the noise, do these smaller type deals that actually have massive. So when I say that, I'm saying we will do a 10, a one, a 10, a 15, a 20, 50 million grand deal.
It sounds massive, but if you think of in the formal space, we are doing 200, 500 billion RAN type deals, we'll do those deals. And the multiplier effect in that space is actually tremendous. And when doing those deals, we are earning massive commercial returns. And we've got a host of examples of deals that we have done or transactions that, or partners that we've worked. To actually facilitate growth in the S M M E space.
And it's actually been a great journey because not only are we able to provide capital, we are able to assist these SMEs and the owners with actual resources, networks, partners that they can. And, and you actually see that growth from one to 10 employees to 203 employees over a period of time. So it, it's actually very fulfilling while earning that commercial return, which we spoke about at the end of the day. That's a great.
So And, and I know you were saying that you lot of the time some of this is already happening in the background. So if someone's invested in a, in a retirement fund, portion of their retirement fund, capital might already be allocated to, kinds of projects.
But, but just very practically for, for kind of someone who says, okay, I've got, you know, my 1000 rent a month, or 10,000 rent, or a I mean, are, are there untrust vehicles that they can look at that says, okay, this is where I can allocate that money to actually, what, what, what's the category of untrust that they're looking at, or what's their name of the, you know, how do they go and Google the product to say, okay, this is the universe that I'm looking for.
What, what are they looking to find?
The best way to explain is that anything from your 1000 to 5,000 grand that can be invested, there are products available. For example, if you go into our website, you'll see what the forms are, what the minimum requirements are. There's even an ability to check what sort of risk tolerance you have is. I think the important part is before you jump in with, with both feet, in terms of investing in infrastructure, you have to see if this meets your ReSTOR.
So it might meet, meet your model and ethical requirements in terms of improving. but do you have that tolerance? So check to your personal advisor and say you've got an appetite for infrastructure. Which sort of infrastructure vehicles work best? Is it an etf? Is it a direct prescient type fund, or is it a investment via your pension fund and the likes? And you can, they'll very easily be able to do that assessment for you and then direct you accordingly.
But, we are very cognizant of risk and in just in jumping in and investing, I don't think that's probably the best thing to do. But if you ask those questions, they will clearly flag our funds, which have had a stellar couple of years. And I have to do that again. I'm very passionate about the infrastructure space. So while returns and performance has been great, it's actually the impact that you've. and like even in the renewable energy space, we've invested in what, 22 projects.
We haven't had a single default in any of those projects. We've created meaningful jobs in rural, rural areas. This is, ah, this is far Northwest. It's in the eastern cape. Places that don't really have the ability to create their own jobs. We've brought certain jobs to them. The, the, the, what they have in their favor is they have the resources in those areas. As in the sun is shining, the wind is blowing at the, at the appropriate speeds.
So now with that in person, we bring transport, we bring community centers, schools, all of that as part of the process or the projects that are being put up. It's job creations, it's impact. All of those type of. So it's, it's really a impassion plea to consider infrastructure investing in your portfolio and ask the hard questions because we are doing great things behind the scenes.
and and I think it's an important know, that that, that we often get this impression that the world of money is on a computer screen and it's you know, it's, it's numbers being quoted at you in the media, et cetera. But, but what you're, what you're telling me, and, and, and I think it's important is that actually. Eventually it gets right down to physically on the ground, you can actually see money creating jobs, creating hopefully create, creating a better future for all of us.
And, and, and it's an important that you know, we, we, we hear all these things like, you know, the bid window for renewable energy was closed and, and some project has been funded and financed, but what you're saying, actually that means a wind turbine and not just one, but lots of them went up in a town called Lots of jobs were created there. People forever you know, if they look after those tho those will be job creation vehicles that will help more people go to school.
More people be you know, a whole grid gets better. And, and this is stuff that's happening. Already all around us. It's not just some news article that some, you know, American funder is just making money off our country. The, these are our money with our.
Exactly, and, and the clients into our funds are generally South African clients and their end clients is the man on the street, and that's South African individuals investing in those. So they're getting the returns. They're actually making a meaningful impact in the lives, whether it is temporary jobs during a construction phase, which then transfer into permanent jobs over time. Or it's simply the fact that now there's a hospital or a school put up in that region that wasn't before.
So that is why if you're just looking at the role of the private sector working hand in, in hand, in hand with. These are really a lot of positives that are happening behind the scenes that we don't always see in sensational media, which I call but.
And, and maybe that's a point is that you, you know, someone like me that tries to kind of filter the, hype from the, the real news. even like, we're not getting that, you know, I don't see that, that actually, I just get so frustrated. I think government's doing nothing. You know, they talk and they do nothing. But what you're saying is you can physically, you can actually see it.
You, you can, you can quantify it on a balance sheet and an income statement, but physically, with your own eyes, you can go there and look at it and see things are happening. Things are maybe not fast enough. not. We could all go faster.
that's a very important point. It's, it's maybe not happening at the pace that everyone wants it, including us should be happening. But it is happening and I think for us to actually accelerate change in the country, it has to happen at a faster pace. But the only way we're gonna do it is if invest in vehicles such as ours or our as opposed to the umbrella funds down the street are doing the same.
More capital comes into the system, more discussions and I suppose proper consultations with national treasury and government. We can facilitate change cuz we are in a very precarious position as a country. We all know that that is the honest truth. But again, these type of initiatives, be it renewable energy, be it S M M E development, be it just general infrastructure outlay for water. they can be meaningful change that is made.
And that is what we, myself and my co portfolio, Niel Zuko, that is what we are passionate about. People always ask, why would you want to do deals at these type of returns when you can buy a government bond at 11 or 12%? You know what I'm saying? Yes, that does help. Yes, that is a return orientated focus, but look at the meaningful returns that we do.
the meaningful impact that we make and also the lack of volatility in our funds compared to government bond type funds, which is a very important selling point for us. If you look at our performance of our portfolios, and this is a general infrastructure trend that's shown by Munis, it's shown by the research houses, and it's not media selling our funds. It's that the infrastructure assets have a low probability, a low probability than general assets.
They're UNC correlated with your normal traditional markets, and even during the height of. The actual uncertainty and volatility or potential default that we thought would've come through actually didn't come through. So it's actually a, we understand the risk of these projects. Again, I'm saying it's not, it's riskless. It's not riskless, but we understand the risk and shown that these type of projects actually have a quite a low PD profile over. while having great returns.
And that is in the South African context, the African context, and we actually have better default probabilities, which is lower default probabilities than the actual developed world when it comes to our infrastructure project, which if you didn't know, you would assume that a project in the United States or in the UK would actually be fair, better than ours. No. We get better returns and we have better risk measures in the developed world, which is something that fleets mind.
It's a powerful message, I think, you know, and, and, and I'm gonna, I'm time Conway, because we've got our, my, my favorite questions to new you meet your 21 year old self, what would be the one lesson you would like to, yourself with, with the benefit of your experience of, of life since then?
But, so while you're thinking about that, I, I think it's an important point that you've made and, and I, I can hear the passion kind of coming through a, around infrastructure and, and so I'm, I'm, I I think it's, it's, it's really valuable that, you know, an an investor.
needs to do your homework around this to say, okay, I can't go and take all my money and put it all into infrastructure because that's, that's a lot of eggs then in one basket, but certainly that it should be one of the baskets in which you invest. I think that's a, a really And you should be doing your homework on this. You should be asking questions, doing your research to say, how do I allocate capital to this?
If, if your retirement fund, if you work for a big company and you, and you ask your retirement fund and they say, We don't do It's, it's kind of something you need to be asking real questions about is why not, you know, you can change our country and make us money. So, so I think it's a, it's a real push to, to kind of just, you know, we all need to wake up about this and say, we can make money, change the, the, the, the, the futures of, of our, of our fellow South Africans.
Those that don't have jobs. They can get access to jobs, they can get access to, to funding for We get more. All of these are positive things. So, so it's, it's worth homework to find out how you can access. As an investment type, and then keep nudging and don't be quiet. You know, be vocal about this. If, if your company's not your company, fund's, not doing this, you know, don't, don't sit back, you know, push for it. It's your, it's your money and it's your, your future as well.
So I think it's a really powerful message. And, and, and I appreciate you, you time Conway and so and so to question. The, the one thing you'd love to have ha have a conversation with your 21 year old self to say, this is
It's, it's something I didn't prepare for, but in just thinking about it, again, we num we are numbers guys, after, at present, if you read 12 books a year and you reading from the age of eight, nine years old, tell you about 60, you can probably read. Six, 700 books a year, right? I mean, sorry, 600, 700 books over your lifetime. So start early, start reading as much as you can.
Absorb as much information as possible because there's a host of information out there that can open your mind to numerous things and you can just learn by reading. So it's probably been read more as a 21 year old. Probably travel a bit more, but then also because I've always been investment minded start investing early, the, the power of compound. Is truly amazing. I only started with very, very small amounts. I didn't have much at 2021, but try to see where you can find some money and invest.
The difference between starting and investing when you're 21 versus investing when you're 30, 40 years old is massive.
I think it's two powerful points there is invest your mani and invest in your brain, you know, and keep, keep, keep building both. So, Conrey Williams, thanks so much for, for joining us. It was a real pleasure you I, I've been in the of Manny for, for more than 30 years, and it was a, I actually learned a lot today, and I, I really appreciate your time. I look forward to chatting you to you again in the.
Thank you very much.