Pension funds have responded positively to a government initiative to support SMMEs in creating jobs, matching R90m from the National Treasury’s jobs fund with R900m, to raise almost R1bn in the latest round of funding.
Rob Nagel, credit portfolio manager at Ashburton Investments, told Business Times that Ashburton was allocated R90m as capital, which would sit in a third-party independent trust and was used to draw the pension fund market to raise R900m.
“Pension funds and medical aid funds and so on… might perceive the risk to be too high, so what you do then is you find a collaborator or third party — in this case National Treasury through the National Treasury jobs fund — then you lower the perceived risk on the project.”
He said the funding was transferred to the Small Enterprise Foundation (SEF), which reaches more than 150,000 entrepreneurs. Ashburton was able to get loan investments through SEF, other intermediaries, including Retail Capital and the Trust for Urban Housing Foundation (TUHF), which lends to entrepreneurs in inner-city development.
“We won’t lend directly to that building entrepreneur. We would lend to TUHF, which would then on-lend. So TUHF will charge an interest rate, they would then pay us the interest, which we then pass on through to the pension fund as their return.”
From the funding Ashburton transferred, Retail Capital lent tranches of up to R2m, averaging a few hundred thousand to small businesses. SEF lent using a Grameen (microfinance bank) model with tranches of R1,000 to R2,000 to budding entrepreneurs in Limpopo and Mpumalanga.
Nagel said it was an added benefit that the initial R90m in the fund had a range of conditions tied to it and that there were adequate measures to absorb shocks by the time the pension fund market came in.
“They knew that the losses to that fund, which is almost 10% of that fund, would be absorbed by that amount. By doing that, we have managed to raise R900m. If we did not have that catalytic capital, the pension fund capital probably wouldn’t have come in at all, or at far lower amounts.
“This part of the marketplace, the unlisted debt market, where jobs are being created, is perceived to have a far higher risk.”
Nagel said regulation 28 of the Pension Funds Act — which limits how much retirement funds can invest in asset classes — was not holding back the flow of capital. It was being held back by low risk appetite and pension fund boards. The Treasury said the funding round announced in April aimed to support innovative solutions that address critical employment barriers in SA’s green and informal economies.
“Previous funding rounds have seen R7.4bn being disbursed to jobs fund partners, resulting in the creation of 210,719 permanent jobs, 114,534 short-term jobs and internships, and more than 63,000 SMEs and 16,000 emerging farmers supported.”
The initiative comes as unemployment, especially among young people and women, remains a pressing challenge, the Treasury said. The target sectors for this round of funding included the green economy, sustainable agriculture, waste and water management as well as the informal economy.
“The fund seeks to support creative, scalable interventions that will contribute to sustainable job creation and stimulate inclusive economic growth in high labour absorptive sectors.”
The Treasury said proposals from public, private and nonprofit sector intermediaries must demonstrate long-term financial and operational sustainability to be considered. Successful proposals must provide scalable, implementable solutions with measurable impact on job creation.
According to research conducted by insurance group Momentum and the University of SA’s Bureau of Market Research, the SA Reserve Bank estimated household wealth to be R19.8-trillion at the end of 2024.
The research, which looked into financial strength and product use in SA households, found that pension funds and long-term insurance products account for 37.3% of total household assets, surpassing any other category, including residential property and unit trust investments.
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