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The “TIPping” point for economic transformation

14 March 2018Dr Gil Mahlati, BayHill Capital
Dr Gil Mahlati, Chairman of BayHill Capital and founder of the African Financial Group.

Dr Gil Mahlati, Chairman of BayHill Capital and founder of the African Financial Group.

In his 2018 State of the Nation Address, President Cyril Ramaphosa referred to black industrialists, saying, “We are developing a new generation of black and women producers who are able to build enterprises of significant scale and capability.” He also noted that: “It is our shared responsibility to grow this vital sector of the economy.”

President Ramaphosa’s words point to the need for business and private individuals to step up and find ways to support economic transformation. Developing an inclusive economy in South Africa will lead to a reduction in inequality and generate investment, economic growth and stability.

It is thus timely that BayHill Capital, the wealth management company specialising in transformational investing and part of the African Financial Group, is listing the BayHill Transformational Investment Portfolio (TIP) on the ZAR X Stock Exchange on 24 April 2018.

“Transformational investing is about making investments that drive social and economic transformation in South Africa, while at the same time delivering attractive returns and creating wealth for our investors”, says Dr Gil Mahlati, Chairman of BayHill Capital and founder of the African Financial Group.

“Most South Africans don’t take transformation of the country into account when saving, despite the fact that this can be a powerful agent of change. We hope to make a positive impact on this.”

BayHill Managing Director Geoff Blount explains, “Through TIP, we aim to embed the asset class of transformation investing into the way investors approach their investments and how consultants, financial planners and other industry role-players incorporate transformation into their investment strategy.”

Shareholders in TIP will own an underlying portfolio of investments that include JSE-listed company BEE schemes, black industrialists, BEE transactions, private equity and other investments that offer an attractive return but also drive transformation, create jobs, generate economic growth, and invest savings back into the communities those savings come from.

According to Mahlati, TIP aims “to attract individuals, financial planners, investors in existing BEE schemes, community groups, syndicates, stokvels, pension funds, union funds and other institutional investors through an ongoing capital raising program that our ZAR X listing structure allows for.”

“A unique feature of TIP is the TIP Swap, which solves the problem that existing investors with over R400 billion in BEE schemes face; namely liquidity and lack of diversification,” adds Mahlati.

“In the Swap, TIP will buy out investors in existing BEE schemes, in exchange for TIP shares. The investor would then own TIP shares, and TIP in turn would be invested in the BEE scheme. The result is that the investor no longer has a locked-in investment in one underlying scheme, but owns a listed, liquid, tradable share that is diversified across many different BEE schemes, while the underlying firm also retains a black-owned and controlled investor.”

The Swap program will thus enable TIP to build a core portfolio of quality JSE-listed firms accessed not at prevailing share prices, but via their BEE scheme discounts, boosting investor returns above that of the market. At the same time, the investors in the BEE schemes will have “securitized” an asset that only has value at some distant date in the future.

Blount further explains that BayHill Capital opted to list TIP on ZAR X as the exchange’s operating platform and TIP’s pre-trade compliance rules will ensure that TIP will always be majority black-owned and funded, even in a real-time trading environment.

“ZAR X also levies no minimum transaction charges, which will allow small retail investors the ability to trade shares at a 1.5% transaction charge even on very small amounts. This, coupled with the ability to trade via a ZAR X app, will drive financial inclusion and allow even small investors to access BEE opportunities normally reserved for the wealthy or connected.”

There are also no lock-ins for investors. As a listed company, shareholders are free to trade their shares at any stage. BayHill TIP’s capital structure allows for shares to be issued or repurchased to facilitate this, as well as to manage its balance sheet and share price where shares start trading at an excessive discount to net asset value. BayHill TIP will therefore provide investors with the liquidity of a listed share and the advantages of a diversified, professionally managed portfolio.

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