Section 12J manager Westbrooke Alternative Asset Management has confirmed that its 2020 fundraise has brought in over R400-million from more than 400 investors, with investment sizes ranging between R250 000 and R5-million.
Dino Zuccollo, co-head of 12J at Westbrooke and chairman of the 12J Association of South Africa, explains: “We are increasingly seeing investors making 12J investments as an alternative to annual retirement annuity contributions. Despite the investment caps which were introduced by National Treasury in July last year of R2,5-million per individual/trust and R5-million per company per annum, there is clearly ongoing investor enthusiasm for the incentive. A 12J investment with Westbrooke offers investors the ability to make a 100% tax deductible investment alongside an experienced alternative asset manager with a 15-year track record of managing third party capital.”
Approximately 75% of the money Westbrooke’s 12J funds raised in the past year was through partnerships with wealth managers. “Wealth managers are increasingly seeking alternative investments with uncorrelated return profiles.
“In this context, 12J investments are fast becoming a standard allocation in client portfolios. Wealth managers seek out 12J providers that are part of a larger asset management business with an established track record of successfully sourcing, managing and exiting investments on behalf of clients,” says Zuccollo.
Last week’s budget review indicated that National Treasury will evaluate the impact of the 12J tax incentive in achieving its objectives. “We regard these comments as positive. Government is evaluating the industry for effectiveness and impact ahead of its decision on an extension of the sunset clause in June 2021. It is time for the industry to prove its worth and to demonstrate how the investments have created jobs, grown SMMEs and boosted future tax collections,” Zuccollo explains.
In terms of measurable impact, Westbrooke’s 12J business has raised approximately R2,7-billion and spent R1,3-billion across 50 SMMEs well within the legislated investment period.
Westbrooke estimates that this investment has created more than 2000 jobs. “When this is contrasted with government’s pouring of capital into SOEs at a much higher cost per job, the scale of the impact of 12J in a short time is evident.”
Based on figures released by SARS in 2019, Westbrooke accounts for about one-third of the industry’s total capital invested.
In February 2019, the 12J industry was worth over R8-billion, having more than doubled in 12 months. Final industry numbers for the 2020 fundraise are still to be confirmed but are expected to be lower than in prior years given the investment caps.
“12J is essentially a partnership between high-net-worth South African individuals/companies/trusts and government, in terms of which they invest capital in the South African economy for at least five years, at a time in which the majority of this capital would have been taken offshore,” says Zuccollo. “We believe that 12J is one of the few incentives that is able attract this private investment in a tough economy.”
Student accommodation
In the February 2020 SONA, President Ramaphosa announced plans to develop nine new technical and vocational education and training colleges (TVETs), as well as the Ekurhuleni University.
This, among other requirements in the sector, highlights the need for an approximate R64-billion worth of new government funding for student accommodation, as well as another R64-billion from the private sector says Ramaphosa.
Westbrooke’s student accommodation fund (Westbrooke Stac) has successfully raised about R800-million to assist in furthering this strategic government imperative.
SMME development
Westbrooke’s Aria, a fund which provides growth capital to SMMEs, also supports government’s job creation and SMME growth strategy.
“For instance, we invested in a joint venture with Mobile Macs, a small business that rents scooters to end user clients which include Steers and Debonairs franchise stores. In 2016, Mobile Macs needed growth capital to fund a nationwide expansion strategy.
Through an approximate R20-million in equity funding, we have helped them scale their fleet from about 400 scooters, to almost 2 000. That R20-million has put an extra 1 600 scooters on the road, providing each driver a job.”