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Cape Town - FirstRand's [JSE:FSR] asset management arm Ashburton Investments has launched a green debt initiative comprising debt arising from infrastructure projects under the South African Renewable Energy Independent Power Producers Procurement Programme (REIPPPP).
Ashburton Investments announced on Monday that it has successfully concluded the first close of the green debt initiative. In a world first, the mandate is to source only South African consumer price index-linked debt emanating from REIPPPP projects.
According to Ashburton Investments head of fixed income Shalin Bhagwan, institutional investors can expect to earn real yields of about 4% p a before fees "with lower volatility than many other funds targeting a similar level of real return".
Said Bhagwan: "Investors that follow a liability-driven investment strategy, including defined contribution pension funds who wish to target a minimum real income in retirement, should find value from including this asset class as part of their broader strategy.
"Moving beyond pension funds, this asset class may hold advantages for long-term insurers wishing to benefit from the so-called matching premium adjustment that arises under the new insurance regulatory regime known as Solvency Assessment and Management.”
Bhagwan also said that compared to other funds, Ashburton’s mandate is to target debt instruments where the contractual commitment to pay CPI-linked returns lies directly with the borrower. This makes the investment less risky when compared to funds that use derivatives to synthetically replicate CPI-linked returns.
Investors obtain diversified exposure to South African REIPPPP debt across a range of technologies including solar photovoltaic, onshore wind, concentrated solar power, hydro and biomass. This presents institutional investors the opportunity to finance REIPPPP projects alongside SA banks, which have so far provided the majority of the senior debt into the projects.
Corneleo Keevy, portfolio manager for Ashburton’s infrastructure development debt funds, commented that domestic equities are expected to deliver subdued returns over the short to medium term on the back of lower gross domestic product forecasts, higher inflation and higher interest rates.
"Furthermore, the imminent reduction in the supply of inflation-linked government bonds means that those investors that prefer the certainty of guaranteed real returns in excess of inflation will, increasingly, have to turn to other sources. The investment offers about 200 basis points of real yield (or 2% p a) in excess of that available from inflation-linked government bonds, making it is an attractive alternative source of inflation-linked assets, especially after taking into account the government guarantees that are to be found within the REIPPP programme.”
Keevy also said that, in addition to an exclusive focus on CPI-linked debt, there will also be a clear preference for investments in earlier round renewable energy assets that are already operational.
Ashburton, in meeting these sourcing criteria, has already invested into two operational projects and will source further projects by continuing to work closely with a variety of lenders, including the Big Four South African banks, all of whom have been major lenders to the REIPPP programme.
