In 2010, STANLIB invested R12 million in a renewable energy company, which, to help reduce the risk, was made available only when certain milestones were reached. This in turn gave STANLIB the right to take up 35% of the equity in the project under development: the 80-megawatt Kouga Wind Farm, about 70 kilometres south west of Port Elizabeth.

When the first round of bidding in the REIPP was launched soon afterwards, planning for the Kouga Wind Farm project was at an advanced stage, which gave it a first-mover advantage. It was one of 28 wind farms approved in round one of the REIPP. STANLIB took up its 35% stake when the project reached financial close in 2012 and has since increased its stake to 40.6%.

The Kouga Wind Farm, which cost R1.85 billion to construct, has been fully operational since March 2015. It delivers approximately 300 million kilowatt hours of clean energy to the grid each year, which is enough to power almost 50 000 households.

Today STANLIB’s stake, which is held in the STANLIB Infrastructure Private Equity Fund I, is valued at a significant premium to the initial investment made. Apart from attractive returns for Investors, Fund I’s investments have generated over 700 direct jobs and more than 700 million tons of carbon emissions reductions per year. The community, which directly holds 26% of the wind farm, has enjoyed significant upliftment from the Project, such as the building of new schools, skills development and job creation.

Mobilising private capital for infrastructure requires expertise

Private sector capital plays an increasing role in upgrading and maintaining SA’s infrastructure base, with significant potential for positive impact on surrounding local communities. This supports the government’s identification of infrastructure investments as an important driver of future growth of the South African economy, and especially in critical areas such as the provision of basic services such as power, water and transport infrastructure, among others.

Market dynamics are supporting the mobilisation of private-sector capital and expertise as yield-seeking investors in developed markets contemplate near-zero or negative interest rates and worry how they will meet their long-term return targets. Infrastructure investments offer many benefits but requires partnering with an asset manager with the right skills and track record to avoid pitfalls.

Key elements of successful infrastructure investing include being an early mover in a market and the selective use of development capital, which can be highly remunerative. While many potential investors may be dissuaded to enter new markets, STANLIB has found that actual risks in new market sectors tend to be overstated.

Having the right partners is paramount, as is engagement with regulators and government. There must be a strong and appropriate alignment of interests to minimise potential conflict areas. In the Kouga Wind Farm example, STANLIB’s engagement at the time with regulators and other key industry stakeholders gave it confidence that the South African energy market would be opened to private investors.

Building on past successes

The Kouga Wind Farm was one of the first investments made when STANLIB launched its private equity capability, under Greg Babaya and Andy Louw. Following on the success of the STANLIB Infrastructure Private Equity Fund I, with peer-beating risk-adjusted returns, the team has launched a second fund, STANLIB Infrastructure Fund II.

Fund II raised R5.5 billion so far since launching in July 2020  and is aiming to raise another R2.4 billion in February 2021.

“The interest shown by investors in Fund II underscores the fact that there is significant appetite from clients to marry return objectives with a positive social impact,” Babaya says.

Drawing on the private equity team’s experience with projects such as Kouga Wind Farm, Fund II will focus on South African infrastructure opportunities that have strategic competitive advantages, in sectors with high barriers to entry, and in projects producing stable and predictable cash flows, with experienced management teams, often with long-term supply/offtake agreements and all with clear exit opportunities.

“The call for private partnership and investments into infrastructure has been widely heard. At STANLIB, we are proud to be in a position to raise and deploy capital in areas that are most needed in South Africa. We will continue to grow and develop our private markets capability as we truly believe that these strategies will diversify the sources of return for our clients and deliver stable, inflation-beating, long-term competitive returns just as we did with Fund I,” says Derrick Msibi, CEO of STANLIB.

“This investment vehicle will go a long way in balancing competitive returns for investors with assisting South African economic recovery. We are pleased to play a part in applying our investment skills whilst being part of the SA solution,” added Msibi.

STANLIB manages over R60 billion in pan-African private debt and equity, which makes it a key player in the private equity industry and enables it to offer its investors a range of alternative assets and specialist skills.