Stanlib, the asset manager that has investments in listed property stocks worth more than R17bn, will focus on local and developed markets after its African fund lost three-quarters of its value in four months.
Keillen Ndlovu, head of listed property funds at Stanlib, said on Monday it is difficult in many African commercial property markets to repatriate money because financial system processes are slow and erratic and there is a lot of red tape.
These cash flow challenges mean that companies that invest on behalf of pensioners for income returns could not justify the risk. While developers and private equity investors can hold onto commercial African properties and sell them later at a profit on the capital invested, income-paying funds need reliable income streams.
We had a lot of interest and turned some investors away but things have not turned out as we hoped.
Stanlib, which has assets under management of about R576bn, is not alone, as other SA property groups have also struggled in the rest of Africa.
Property companies Hyprop Investments, Atterbury and Attacq are trying to sell their stakes in African shopping centres because of high vacancies and difficulties in repatriating cash.
"Getting African commercial real estate to work in a SA-listed fund is very difficult. There are cash flow issues, which don’t work when you have to meet shareholders’ demands and pay out income on a regular basis," Hyprop chief investment officer Wilhelm Nauta said in May.
Ndlovu said even though the Stanlib Africa Property Fund had disappointed investors, it was always a "high-risk-high reward product" and only institutional investors had bought into it.
"The Stanlib Africa Property Fund was established in 2011 to provide long-term exposure to African markets for institutional investors with a higher risk appetite.
"We had a lot of interest and turned some investors away but things have not turned out as we hoped," he said.
"Due to unfavourable market conditions as a result of a slump in economic growth, the fund began to experience regular redemptions. In line with the principles of treating customers fairly and to minimise the risk to remaining investors having higher exposure to relatively illiquid investment markets, a decision was made to wind-down the fund in August 2017."
There have also been forex shortages across a number of African countries recently, as businesses prefer to use dollars on the continent. Cement group Dangote has not been able to start building a manufacturing plant in Ethiopia because it lacks the dollars to import materials.
Total assets under management in Stanlib Africa Property Fund were valued at R220m when Stanlib decided to close the fund. During the process, management fees associated with the fund were waived.
To date, as much as 76% of the fund’s assets under management have been distributed proportionately to investors in cash after underlying investments in Kenya, Botswana, SA, Namibia, Zambia and Egypt were sold.
The remaining 24% of the fund’s assets under management include exposure to Nigeria, Mauritius and Zimbabwe. Ndlovu said these investments could not be repatriated due to dollar shortages in Zimbabwe and thinly traded stocks in Nigeria and Mauritius.
In March, the value of the fund’s remaining assets dropped as much as 53%, predominantly as a result of the devaluation of the Zimbabwean currency.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.