Democratising investing in SA: How Section 12J is playing its part

We live in a world where investing is becoming ever more accessible and of lower cost.

In a country like South Africa — where equities have had several lean years — investors are also paying more attention than ever before to their portfolios and their returns. 

In the search for yield, one investment category that is grabbing more attention is the fastest-growing asset class in SA, Section 12J. 

Section 12J is woven into SA’s Income Tax Act and enables investors to provide much-needed capital to SMEs. In return, investors receive an immediate tax deduction equal to 100% of the amount they’ve invested.  

As of February 2019, a cumulative R6 billion has already been invested in Section 12J funds in SA. 

Section 12J is democratising access to capital for SMEs. This is why it made sense for the likes of MeTTa Capital to democratise entry points for investors into Section 12J. 

Making Section 12J count 

A key challenge with boosting investment in this space is the fact that there are over 160 Section 12J investment opportunities available in SA.  

Large wealth institutions that want to offer just one of these opportunities to their clients would have to spend significant time and resources on due diligence. These institutions then further face a diversification dilemma, as they can’t just opt for one or two 12J investments.  

These hurdles have proven to be a major deterrent for further investment. 

In a bid to solve this problem, a team consisting of some of SA’s most prominent and reputable business people launched the country’s first-ever portfolio of Section 12J fund offering, MeTTa Capital Moderate Risk Fund I. 

Since 2017, MeTTa Capital has conducted several capital raises. During the most recent capital raise for the period ending February 2019, its investment committee, headed by Dr Adrian Saville, conducted a strenuous due-diligence process evaluating over 110 Section 12J companies, filtering it down to a basket of six market-leading investment strategies. 

A fundamental criterion for inclusion on MeTTa Capital’s platform is a responsible and reasonable fee structure that a VCC charges its investors. 

The end result is that for just R500 000, MeTTa Capital investors can own shares within multiple Section 12J VCCs, bypassing these funds’ own minimum investment limits. Investors who invest with MeTTa Capital further have access to a transparent and market-leading post-investment reporting service. 

Since 2017, MeTTa Capital has raised over R50 million for SMEs using this model. The SMEs operate in sectors ranging from hospitality, student accommodation, agriculture and even the fast-growing renewable energy space.  

Viable investment alternative 

By lowering the barriers to entry and following the MeTTa Capital model, the 12J space has the opportunity to grow even faster. 

We have no doubt that the next wave of investment in 12J will come from large wealth institutions, which are looking to diversify their clients’ investments into tax-efficient, high-yielding opportunities. 

One example of this has been Investec, who have been offering their clients 12J investment options for three years already. 

This unique platform aims to facilitate the next wave of investment into the asset class, which can then provide more businesses with the capital they require to effectively scale their operations.  

We believe that the likes of MeTTa Capital’s single entry-point structure is just the beginning of greater things for this space.