EUROPE - South African asset manager Stanlib is moving into the European institutional market with the launch of two funds tapping the growth potential of African equities.
Stanlib will out an African equity fund (ex-South Africa) companies and a separate South Africa-only equity fund which meet UCITS III requirements by the second week in August , to pick up the growing interest in its funds from retail and institutional investors, according to Dylan Evans, director of global investment marketing at Stanlib.
Surprisingly, this is the first South African-only equity fund to be unveiled to the wider global investment market even though companies in South Africa now represent approximately 8% of the MCSI global emerging markets index, or a market cap of $600bn, and represent approximately 70% of the investment universe on the African continent.
The combined SA and Africa markets are thought to make up 11% of the MSCI index or a total market cap of $850bn.
Stanlib's wider African fund is targeted mainly at African pension funds and European investors as South African investors - including SA pension funds - are still bound by rules preventing large sums of money moving into offshore funds and external investments. South African pension funds, for example, are only allowed to invest 5% of their assets in foreign investments.
Investors have access to a potential universe of around 1200 stocks from 20 countries but, in reality, just 40-50 stocks will be selected for the active portfolio from a base of 200-300 stocks across 14 exchanges which have sufficient liquidity and foreign ownership access, said John Mackie, head of African funds at Stanbic Investments - part of Standard Bank group.
Mackie points out selected stocks do not necessarily need to be listed in Africa to be included in the portfolio - although Egypt, Morocco and Nigeria are the favoured markets followed by Kenya, Ghana and Tunisia - as some stocks from London's Alternative Investment Market (AIM), Toronto and Swedish stock exchanges will be included where at least 50% of their turnover is generated on the African continent.
He also acknowledges pension funds may be somewhat wary of investing in African funds because the perception is the continent's economy is driven mainly by commodities and there are still questions about its stability, corporate governance environment as well as apparent corruption.
However, countries such as Kenya are adopting a ‘zero tolerance' on corruption and countries such as China - now a major buyer in the African commodities market - have been reprimanded for poor working conditions, while much of the investment potential is actually in infrastructure which could in turn help economies to grow and boost a country's wider development, noted Mackie.
"There is very a big emphasis [in Africa] on infrastructure, hydro-electric dams, roads, railways and ports, so that is the key theme we are watching. Kenya, for example, doesn't have any commodities and their infrastructure is shot. But they are building highways across Kenya to Nairobi.
"And SRI works both ways. The objective is to get capital in where they have got problems. By investing in a company like a Tanzania electric company you can help fix problems and help develop a power grid that works. The benefits to people are immense," he added.
Evans said European pension funds are likely to remain a secondary target market for at least six months as multi-managers, hedge funds, high net worth, private banks and African pension funds are most likely to be interested in investing in these long-only funds.
That said, one of the African fund's first substantial investors is a Swiss pension fund and it is expected pension funds will buy into the fund for emerging markets diversification.
Stanlib created operations outside its SA base in 1995, to manage mandates outside South Africa and has since grown to become the third-largest asset manager in SA with assets under management of $45bn (€32.8bn).