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SIMON BROWN: I’m chatting with Johan Marnewick. He is head of head of fixed income private markets at STANLIB Asset Management. Johan, appreciate the time this morning. Your STANLIB Khanyisa Energy Transition Fund’s first close at R5 billion – let’s start with perhaps a slightly technical question. What does ‘close’ mean in this environment?
JOHAN MARNEWICK: Good morning, Simon. Thank you for asking. We’re pleased to announce that we’ve gone through the first close of this fund. What it means, effectively, is that the fund terms have been agreed upon by the various investors, point number one.
That means we have signed our fund’s documentation, but also that that allowed us to accept the commitments made by investors into the fund, which in this instance, as you say, amounts to R5 billion.
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Accepting those commitments allows us to draw down on the commitments. Literally, we are asking investors to place money into a bank account.
And then what we do with that money is we place it into the various assets that we have lined up as the investments for the fund.
SIMON BROWN: What are some of these? This is the first close. Now you’ve obviously got the cash. You’ve got the mandate of the fund. The plan with it is to help accelerate our energy transition, particularly within renewable energy independent power producers. Talk to us a bit around where you are positioning yourselves there.
JOHAN MARNEWICK: Yes, it is a broader fund, more than just the Reippp [Renewable Energy Independent Power Producer Procurement] programme. What this Reippp allowed us to do in this instance is that we found and sourced pre-existing Reippp assets. These are mature assets that are actually generating electricity into the grid. What that means for our investors is that they are cash-flow generating.
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So we went and purchased existing Reippp assets to the tune of R5 billion and placed them into this fund. They are a very nice underpin, you can imagine, for investors that they are not going to have lazy money sitting in bank accounts that are not providing returns. It’s immediately deployed and the quality assets are up and running and producing cash.
We can assess that quality very easily.
There’s no construction process that we need to go through or anything like that, so they provide a very good underpin for investors in this fund to deploy into new assets in future. That is exactly what we’re looking to do in the second and third and fourth and so on closes, as we step this fund through time.
SIMON BROWN: I get it. To your point, now you are generating returns from the get-go, and I imagine that sort of helps to balance the need for generating returns, but also an objective to have a developmental impact.
JOHAN MARNEWICK: That’s 100% right. As a fund manager this is where we try to carefully balance the requirements of investors, whom we recognise need a return. But we are looking to deploy money into these developmental themes longer term.
How we try and balance that is to say we try and identify people who run sustainable business models, and we try to attract capital in a sustainable way. There’s no point in putting in place a capital structure that is overly geared or will place stress on the underlying operators.
So sustainability for us is a business theme that we try and source out in the marketplace. But then on the other hand it is an investment theme. You want to have a sustainable capital structure which, longer term, leads to a sustainable investment proposition for your investors. Does that make sense?
SIMON BROWN: It absolutely does. And it brings together the investment and risk principles that I imagine in many ways are guiding that process as you deploy across the different sectors.
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JOHAN MARNEWICK: Yes, 100%. Look, as an alternative fund manager, this is a very topical item currently out in the media. Private credit funds are experiencing a lot of stress globally, where it is a long-held belief. Now we can see that belief probably boiling to the surface where people have said and warned that private citizens … have had loose lending terms if they haven’t behaved in a manner that is appropriate for investors.
For us, we build a bottom-up investment thesis always.
We combine it with very rigorous risk management, a very transparent valuation process and continuing to monitor the performance of the underlying, ensuring that the assets are what they purport to be and will deliver the returns for investors. It’s the value that we bring to our investors. It’s effectively what we do on a day-to-day basis.
SIMON BROWN: It’s still to your point. The risk process to managing it is still a hugely important part. Notwithstanding it might be private capital, it still needs to have the proper processes in place.
We’ll leave it there. Johan Marnewick, head of fixed income private markets at STANLIB Asset Management, appreciate the insights.
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