MetAM's SRI offering chiseled to provide greater access to specialised portfolios

Metropolitan Asset Manager's SRI Fund offering has recently been split up into its building blocks, ensuring separate portfolios for equities and bonds thereby offering investors access to more specific SRI exposure.

Portfolio manager Godfrey Albertyn explains that the portfolios were separated to offer each SRI component on its own while at the same time, meet demands for a balanced or combined offering.

"We can now accommodate investors, who, for example, only want exposure to SRI equities, as well as investors who prefer a balanced offering," Godfrey elaborates.

"Nothing has changed in terms of how we manage those portfolios: For the equity portfolio, the universe of opportunities is chosen mainly from the JSE's SRI Index, as in the past. The bond component is chosen mainly from a universe of infrastructure bonds with issuers such as Telkom, Eskom, Landbank, Acsa and DBSA in the portfolio."

The SRI offering includes the Regulation 28 compliant Metropolitan SRI Fund, which invests in listed assets and is made up of the equity portfolio (SRI Equity Fund) and the bond portfolio (SRI Bond Fund). The Regulation 28 funds have combined assets of about R160 million. The SRI offering also includes the flagship R1.1 billion African Wealth Creator fund that invests in a combination of unlisted equity, listed equity, property, bonds and cash. African Wealth Creator also has significant exposure to infrastructure assets. 

Godfrey says MetAM has been active in the infrastructure space for a long time and has delivered good performance, derived particularly from infrastructure equity investments over the last two years. The group has significant exposure to the SA Infrastructure Fund as well as the African Infrastructure Investment Fund and also has direct exposure to water utility Siza Water Company and to TRAC, the N4 toll road to Maputo.

Over the last few years, these investments have yielded strong returns due to factors such as low and stable interest rates, which have brought the risk premium for infrastructure-related projects down. Another reason for the strong returns have been robust cash flows, which have ensured that projects in general have been able to re-finance their operations, in turn ensuring early payback of dividends to shareholders. The scarcity value attached to these assets - because there are very few around, particularly on the equity side - has further contributed to the strong performance in infrastructure space.

Godfrey also highlights the poverty alleviation and job creation aspect linked to infrastructure projects: "Infrastructure assets are well placed in terms of creating jobs because they tend to be large projects, such as the R25 billion Gautrain project, which will create about 60 000 jobs, even though some of these are temporary,."

He adds: "Another factor contributing to job creation is that government is often the contracting party and they have goals for job creation and furthering transformation in the economy. Targets in relation to these criteria are set in the concession agreements. This would, for example, stipulate that the concession holder has to employ local labour and has to further the development of SMME's."

In this way, projects are generally positive for surrounding communities as they plough back into these communities. An example is the N3 toll road from Johannesburg to Durban running through the KwaZulu-Natal Midlands, which has resulted in seed funding for quite a few tourism projects - indirectly creating a number of jobs in areas of high unemployment and poverty.

The outlook for infrastructure is positive, according to Godfrey. He refers to the SA Infrastructure Fund, probably the oldest infrastructure fund around, which has been going since 1993. "The fund comes to the end of its life in 2012 but the assets which it holds still run through to about 2030, which illustrates that the underlying investments are spinning off a huge amount of cash but are still relatively young with 20 or so years to run. In other words, cash flow coming out of them is going to be strong for a number of years."

In the light of the upbeat outlook, MetAM has increased its commitments to infrastructure equity with current outstanding commitments of about R70 million to the African Infrastructure Investment Fund, a R50 million commitment to the Gautrain project and an in-principle commitment to another fund of about R70 million. This is on top of existing investments in infrastructure of about 200 million.

Comments Godfrey: "What's important to understand about infrastructure equity is that it takes quite a long time to complete a deal so there are quite a few projects which are still in discussion but the deal flow pipeline looks promising for the next couple of years. Our commitment to the African Infrastructure Fund should be fully invested in the next 18 months."

In conclusion, Godfrey says there is good medium- to longer-term (three to five years plus) potential for infrastructure investing going forward, with particular acceleration of a number of infrastructure projects around 2010. This could be further boosted by increased institutional, and specifically pension fund interest, if there are moves to amend Regulation 28 within that time period.  

 
Godfrey Albertyn, Portfolio Manager