How the Jobs Fund and Ashburton put pension funds to work

21 November, Johannesburg – A successful partnership between The Jobs Fund, a R9 billion challenge fund that leverages relationships with the private and public sectors to create jobs, and the Ashburton Credit Enhancement Fund (ACEF), saw an innovative guarantee mechanism leverage R679 million in private funding off the back of a R68 million guarantee grant. The resulting matched funding ratio of 1:7.5 created over 9000 new permanent jobs and will, in time, crowd further investment into South African SMEs.

The ACEF typically invests pension fund money in medium-to-large corporates and to on-lenders able to provide appropriate security. Since these intermediaries then go on to invest in actual SMEs, “a level of insulation from risk is provided by the ACEF’s own investment structure and strategy,” said Najwah Allie-Edries, Head of the Jobs Fund. After that, “the 50% first-loss capital guarantee provided by the Jobs Fund adds a second level of protection, covering investors for up to half of any losses due to credit defaults amongst the actual SMEs,” she added.

It was this layered risk mitigation which allowed a R68 million Jobs Fund guarantee to leverage more than seven times the amount in private capital for investment in local SMEs.

Ashburton’s strong reputation as a fund manager and their efforts in marketing the SME Fund were equally critical to the success of the partnership. Specifically, the AECF’s role in actively convincing pension funds to take advantage of the amendment to Regulation 28 of the Pension Funds Act, no 24 of 1956, was critical. The funding ratios achieved directly support the Jobs Fund’s challenge fund principles which are to, “drive innovation and investment in new business approaches that directly contribute to long-term sustainable employment creation,” added Allie-Edries.

ACEFs success in raising awareness of the unlisted investment space has gone a long way to change investor behaviour and attitudes towards this asset class.

As a result of this partnership between the Jobs Fund and Ashburton, “institutional investors are, today, more open to seeking out risk-managed impact investment opportunities in South Africa’s unlisted space,” observed Allie-Edries.

ACEF’s continued work in this space will likely crowd-in further investors, sustaining job creation over the longer term. However, since it is the risk-managed nature of the proposition that has made it so successful in attracting funding, “it is crucial that the guarantee mechanism remains in place to boost and maintain investor confidence in the Fund,” said Allie-Edries.

The risk-managed element of the partnership sends a strong message to South Africa’s financial services sector. “Here is an innovative mechanism to drive broader financial inclusion through risk-managed investment in SMEs,” said Allie-Edries.

Another meaningful learning is that “beyond money and investment, practical hands-on business support extended to SMEs has the potential to increase success by also reducing the chances of operational failure,” added Allie-Edries.

As SMEs develop track record within their respective industries, “we expect that other investors will develop a greater appetite to invest in intermediaries who focus on new SME entrants, adapting both the funding model, guarantee, and business support learnings pioneered by the Jobs Fund and Ashburton in this innovative partnership,” concluded Allie-Edries.