Globally, institutional investors have been mobilising progressively more private infrastructure investments. While these investment models have traditionally structured themselves around the conventional private equity mechanism, these institutional investment fund models have in recent times evolved their investment mandates to reflect the assets they are looking to hold. Increasingly, institutional investors are looking for direct investments in the underlying assets, allowing for better returns, lower fees, and better control of their investments. These investment models have further evolved to proffer additional exit strategy options, further increasing institutional uptake. This investment model is well established in countries/regions such as Canada, Asia and Australia through infrastructure real estate investment trusts. GAIA Infrastructure Capital is pioneering the listed infrastructure space in South Africa.
The status of South Africa as the “spring board” into Africa for global investors necessitates good road, rail, port, and air infrastructure development. Improved transport infrastructure will promote transport and trade in goods and services, improve tourism, facilitate a productive transactional environment, while improving the standard of living. South Africa has publicly disclosed some of its required transport related strategic investment projects, numerous water and sanitation related infrastructure funding opportunities that run into trillions of Rands over the next coming years.
The South African energy sector presents a particular opportunity for discerning long term investors. Currently, energy and electricity supply is widely regarded as South Africa’s biggest infrastructure challenge. Investment in renewable energy projects also have clear linkage to the greening of the economy, job creation, social upliftment and rural development, all of which are important elements for institutional and retail investors to consider in their responsible investment strategies. Sustainable development translates directly into development of skills in the local labour market and improved employment opportunities.
The above factors are important elements in providing liability matched income streams to institutional investors that are pursuing liability driven investment strategies, such as pension funds as with energy infrastructure, the opportunities originate through new generation capacity and the replacement capacity while from an investment perspective, a great opportunity exists in both the primary and potentially the secondary buy and lease back refinancing market.
Investments in infrastructure in general and renewable energy projects in particular have various advantages for institutional and retail investors. The financial returns of the projects are attractive due to the following factors:
- cash flows are contracted over a long term, being 20 years in the case of renewable energy projects
- returns are in the form of cash distributions
- returns are explicitly linked to CPI
Although the Board is responsible for the Company’s objectives, business and investment strategies and its overall supervision, the Company has outsourced the identification, assessment, structuring, resultant acquisition and potential disposal of Viable Assets, to GAIA Infrastructure Capital in terms of the Management Agreement. GAIA Infrastructure Capital has extensive expertise and knowledge of and experience in investments in the infrastructure and renewable energy sectors. GAIA Infrastructure Capital will compile reports based on its analysis of the relevant factors and will present each proposed investment opportunity to the Company. The Directors will at all times retain the final sanction over all investment and divesture decisions.