Futuregrowth Infrastructure & Development Bond Fund

Jason and Olga introduce the Futuregrowth Infrastructure & Development Bond Fund, its history, returns, and focus areas.

Video transcript

Hi, my name is Jason Lightfoot and I’m the Portfolio Manager of the Futuregrowth Infrastructure and Development Bond Fund. Hi, and I'm Olga Constantatos, and I'm Head of Credit at Futuregrowth Asset Management. And we’re here today to talk about the Infrastructure and Development Bond Fund.

OC: So, Jason, can you tell us a bit about the fund?

JL: Sure. It’s a fund that I’ve been managing for at least the last 15 years or so. It was launched in 1995 as an investment vehicle to allow the retirement fund industry to access investments in a whole host of different infrastructure and developmental type opportunities - for example, investments in transportation, rail, roads, renewable energy and affordable housing more recently. It’s really a great opportunity to have a vehicle that can not only ensure that the fund offers returns – stellar returns above benchmark – but at the same time have on the ground impact by ensuring that you are ultimately growing the economy through these underlying investments.

OC: Jason, what about the return profile of the fund since inception?

JL: The return target of the fund is ultimately ALBI plus 1.25%. But over the last 25 years, we’ve been achieving close to about 2% through the various alpha generating areas within the fund. Not only do we tap into our credit process both through private debt and listed credit but also through our interest rate process as well.

OC: And you mentioned the diversity of the fund as well. Talk through some of the sectors that the fund’s been invested in.

JL: Since 2011, the biggest sector has really been around renewable energy through the REIPP programme itself - that's the Renewable Energy Independent Power Producer programme. Currently we’re invested in about 31 different projects across a whole host of different technologies, be it solar PV, wind technology, solar CSP (which is concentrated solar power) and a very small hydro plant. But more recently, our focus here has really been around affordable housing solutions.

So Olga, I spoke about our key focus areas being around renewable energy and affordable housing solutions. Maybe just unpack that a bit more for us in terms of the key focus areas and how one is able to mitigate risk within that space.

OC: Sure. If we look at the power sector, particularly the Renewable Energy Independent Power Producers programme, the REIPP programme, it was highly successful and some of the building blocks of that success can be tied to the regulatory certainty and the frameworks that were made available by the government in setting out the programme: clear and robust legal agreements and appropriate risk sharing mechanisms that made sure that risks were sitting with the right parties and that the risk return profile was appropriate. There were also good legal agreements with a strong offtaker in the form of Eskom as well as a guarantee offered by National Treasury in the event that Eskom wasn't able to pay for the electricity that it bought.

So all of those elements contributed to a very successful programme. And what do we mean by that? In the 11 years since it's been launched, 123 renewable energy projects have been bid. Not all of them have been added to the grid as yet. What has been added to the grid has contributed over 6200 megawatts of electricity. That's equivalent to six levels of load shedding - so that's significant in our context of shortages.

123 projects and what's important about that is that there've been zero allegations of malfeasance or misspending in the allocation of over 250 billion rands worth of investments. So it was a highly successful programme and we think it should be replicated to cater for the significant under-investment in key infrastructure areas that Jason mentioned earlier, particularly around transport and logistics.

Another key sector that Jason highlighted is the affordable housing sector that's been one of the building blocks in the fund. Some of the risk mitigation in that space has been linked to the security that has been offered in the form of land and buildings, as well as experienced operators, and making sure that we are funding people who have skin in the game and have experience in the space. The cash flows, obviously, are important in assessing the risk in an investment like that.

So those are some of the building blocks that have made investments in these two sectors part of the success of the Infrastructure and Development Bond Fund.

What we'll be looking at in the next video is the reforms that are needed over the next 6 to 12 months to unblock investment in the electricity sector, in water and municipalities, as well as in transport and logistics.

We'll be chatting about that next time, and we'll see you then.