Financial Mail: Responsible Investments

24 July 2009

RESPONSIBLE INVESTMENTS
Bringing social returns
By Razina Munshi

Renovating derelict buildings in Johannesburg’s inner city is expensive
business. High risks have sent banks scuttling for cover; they won’t lend
without someone else chipping in first.

This is where investments of the socially responsible kind have filled the
gap. In 2006, Futuregrowth’s infrastructure & development bond fund was
the first private institution to lend money to get the Trust for Urban Housing
Finance (TUHF) on its feet.

Futuregrowth’s infrastructure & development bond fund is SA’s largest
dedicated infrastructure debt fund. It was initiated in 1995, and is worth
R4,5bn. It is also SA’s best-performing bond fund, and has been for the past
14 years.

TUHF funds property entrepreneurs to purchase or improve residential
rental buildings in SA’s inner cities.

The entrepreneurs are small to mid sized companies, and sometimes family owned ventures, who would have a hard time getting finance from a
conventional bank. Futuregrowth gave TUHF an initial R50m. This has
grown to R180m and they are in negotiations about lending more.
The money has enabled TUHF to fund entrepreneurs like Jeremy Berman
and his brother Paul, who now own 22 buildings in Johannesburg’s city.
Refurbishing housing in the inner city is the key ingredient of inner-city
regeneration. Futuregrowth portfolio manager James Howard says it has a
high social impact, while still giving investors a financial return.
The company’s other socially responsible investment funds include the
infrastructure & development equity fund, worth R474,5m, and the
community property fund, worth R2,6bn.

Socially responsible investing (SRI) integrates environmental, social and
governance, or ESG, factors into investment decisions. It is aimed at
investors who primarily want a return but also want their investment to have
a positive social impact.

The untapped potential is huge. Of SA’s R2,5 trillion investment industry,
just R20bn is dedicated to SRI. In developed countries, 10%-15% of
retirement assets are invested in SRI strategies.

SA’s most recent SRI venture is 27Four’s Kunye Fund, launched in May. It
is a pooled portfolio with a 50-50 split between Futuregrowth’s
Infrastructure Bond Fund and Investec’s RI Equity Fund. Kunye is worth
R20m to date.

27Four MD Fatima Vawda says trying to change the mind-set of investors
has been a challenge. Investors still don’t believe that one can get good
returns from SRI funds, she says.

Howard agrees: “There is still huge confusion about SRI, which some
investors mistake for CSR – corporate social responsibility. They think it
will mean giving their money away or forgoing a return.”
But Howard says awareness has increased. And the funds have performed
on average or above others, which has helped to dispel the myths.
Another SRI initiative is Cadiz African Harvest Fund Managers’ joint
venture with nonprofit organisation Greater Good SA. Greater Good SA has
an SA Social Investment Exchange – a stock exchange which lists
development projects that offer a return for those who choose to invest, but
not in the form of profit.

Other SRI funds include Old Mutual Asset Management’s Infrastructural,
Development & Environmental Assets (Ideas) Fund, which also invests in
inner-city housing.

Ideas has invested about R112m in a 50% stake in the Affordable Housing
Company, which provides accommodation to low-income households in
Johannesburg.

Given that SA has no shortage of areas where socially responsible
investments would be welcomed, SRI doesn’t mean saving whales.
Infrastructure remains one of the biggest challenges, and with its high social
impact, it is the ideal avenue for investing responsibly.