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Changes are coming

THERE is a new asset class emerging in South Africa which is likely to create a number of opportunities for entrepreneurs and investors in coming years - and that is in the unlisted market.

Before my colleague Marc Hasenfuss slates me in his Friday column, let me clarify. I am not talking about peddling unlisted shares and dodgy small caps to pensioners.

I am specifically referring to the funding market around small- and medium-sized enterprises (SMEs) where quite a lot of interesting things are happening, even if the market is a little informal at the moment.

In April, leading RE:CM value asset manager Piet Viljoen announced that he was putting together a new listed vehicle to take part in making investments that would fall outside the typical risk mandate adopted by traditional unit trusts.

On Tuesday, Cape Town-based asset manager FutureGrowth and NURCHA, a construction and funding organisation, announced a partnership which would see FutureGrowth provide up to R200m to support small and emerging contractors seeking short-term finance to complete infrastructure projects.

While it is a small step, can you imagine how much more competitive our construction sector would be if smaller businesses could be paid consistently and on time for carrying out tender work?

In a slightly different space, small business lending phenomenon the Crowdfund has raised over R1m in pledges in just under a month to support entrepreneurs. Also, a number of senior venture capital players in South Africa have turned their attention to developing the angel funding chain.

Small firms to outperform the JSE?

Another statistic I saw recently was that by 2015, a company like Sasol will be spending nearly R1bn a year in enterprise development (ED) programmes. While ED has its own problems, if there is that much money being thrown at SMEs some are invariably going to flourish.

The outcome is that small firms do business with other small firms, and that means a more equal sharing of the profit pool.  

I asked Trevor Abromowitz, head of asset consulting at Alexander Forbes, whether he saw more of these kinds of investment vehicles in the pipeline and his answer was: "Without question - more and more of them are being brought to the retirement funding industry."

He did, however, caution that one of the concerns of Alexander Forbes - and one of the reasons why the retirement industry was wary about supporting this kind of product - is a lack of liquidity. Some of the projects he saw had been waiting more than three years to withdraw funds from their investments.  

Maybe this is an opportunity for some entrepreneurial people to look at building the SA start-up index concept and develop platforms to facilitate trade in these markets?

I have said before earlier this year that the next decade is likely to be one which richly supports entrepreneurs and small business.

With the European sovereign debt crisis and various regulatory issues facing many large corporates, I will go one step further and say that investing in either the small business sector or   your own small firm may well outperform mindlessly pouring your money into the stock market.

- Fin24.com

 

 

 

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