Impact Investment Africa Section 12J and Institutional...
Transcript of Impact Investment Africa Section 12J and Institutional...
Impact Investment Africa
Section 12J and Institutional Investment Opportunities
Chris Hart
Executive Chairman
Impact Investment Africa
2019/2020
Enriching lives through opportunity
Impact Investment AfricaAgenda
.
The Phenomenal Section 12-J “Secret”
Unique Institutional Investment Offer
Importance of Impact Investing
Strong Projects and Further Action
Enriching lives through opportunity
.
Impact Investment Africa – What We Do
IIMServices
Asset Management:Pension Funds
Institutional Investors
Cash Management:Enhanced Yield
Low Risk ZAR; BWP; $
Section 12-J:Tax-Efficient Investing
Legitimate Tax Avoidance
Second Jurisdiction:ExpansionRelocation
Enriching lives through opportunity
Impact Investing:Socio Economic Solutions for investors
under pressure to invest in the SRI space
Smart Structuring:Meeting regulatory obligations
by lowering costs and improving effectiveness
Botswana HQ:Pan-Africa
.
Venture Capital
InvestmentProposition
S12J Tax Break
High Tax Context
Increases Tax-Planning Flexibility
A Financial Planning Option that has to
be Considered
An Investment Option Every High-Tax Paying Investor Should Consider
Investment Period: 5 Years
Full write-off against income tax
Individual (45%) and Company Tax (28%)
.
S12J – An Extreme Tax Break
Enriching lives through opportunity
.
Do Nothing
R1 000 000
Becomes
R550 000
After Tax
Invest R550 000 in Money Market:
6.50% taxed at 45%
After Tax ERR: 3%
Invest in an IIA Section-12J
R1 000 000
Is kept in full –
Tied Up for 5 years.
Assured Exit
Reliable and regular dividend stream of 12% to 15%
on the full R1 000 000 .
After Tax ERR: 25% to 28%
A minimum of full nominal capital returned net of
current CGT
The Tax Effect of Section 12-J: IndividualsR1 000 000 of pre-tax income
Enriching lives through opportunity
Investor does not pay fees. Fees paid by investee company.
R550 000After Tax Capital
R1 000 000Pre-Tax Capital
Do Nothing
Section 12-J Turbocharged Returns
S12J – Effect on Capital and Income for Individuals
Enriching lives through opportunity
R19 700 per annumAfter Tax Income
R1 000 000After Tax Capital
R96 000 – R120 000 paAfter Tax Income
Invest in IIA S12-J
Enriching lives through opportunity
Section 12-J Tax Table
Investment Amount(R000)
Taxable Income(R000)
Tax Liability(R000)
Tax Saving(R000)
0 4 000 1 657 0
1 000 3 000 1 207 450
2 000 2 000 757 900
3 000 1 000 327 1 330
4 000 0 0 1 657
Tax avoidance approved and designed by SARS that SARS wants you to take
.
Do Nothing
R1 000 000
Becomes
R720 000
After Tax
Invest R720 000 in Money Market:
6.50% taxed at 28%
After Tax ERR: 4.6%
Invest in an IIA Section-12J
R1 000 000
Is kept in full –
Tied Up for 5 years.
Assured Exit
Reliable and regular dividend stream of 12% to 15%
on the full R1 000 000 .
After Tax ERR: 23% to 27%
The Tax Effect of Section 12-J: CompaniesR1 000 000 of pre-tax income
Enriching lives through opportunity
R720 000After Tax Capital
R1 000 000Pre-Tax Capital
Do Nothing
Section 12-J Turbocharged Returns
S12J – Effect on Capital and Income for Companies
Enriching lives through opportunity
R33 700 per annumAfter Tax Income
R1 000 000After Tax Capital
R120 000 – R150 000After Tax Income
Invest in IIA S12-J
.
The IIA Section 12-J: Additional Benefits for Companies
RegulatorySolutions
BBBEEScorecard
SRIObligations
EnvironmentalLegislation
Educationand
Training - ETI
Compliance: lowering costs; increasing effectiveness; Smart Structuring
Enriching lives through opportunity
Turnkey SolutionsReleasing management attention;Effective, meaningful compliance
Bespoke DesignEssential to work with
rating/assessment agencies
EDETISDOwnershipY.E.S. ……
Converting Costinto an income-producing asset
.
Our S12J Investment Characteristics
The investment is designed to behave almost like money market
Y0 Y1 Y2 Y3 Y4 Y5
CapitalOut
12% - 15% Dividend StreamUpside Participation
CapitalBack Y5/6
Capital is returned net of CGT at a minimum.
The investment case has been constructed so that it stands on its own and is a competitive investment offering even without the S12J tax break.
Enriching lives through opportunity
Expected Rate of Return25%-28%
ERR 15% to 18% for Green/Brown-fieldProjects
Enriching lives through opportunity
IIA Investment Offering: Features
ScalableValuationLiquidity
Collateralizable
Assured ExitRobust
Investment Case
IIA FundFeatures
Investment case is
not dependent on the tax break
Impact Benefits:BBBEE,
Carbon CreditsHigh Impact
Risk/ReturnCapital protected
Reliable, enhanced Income
Value Add
Assumes 6-Year Investment and return of nominal capital as a special dividend net of taxes
IIA Section 12 J ERR Calculations – After Tax
.
Enriching lives through opportunity
Dividend YieldInvestment ERR
Before S 12 JS 12 J Overlay
45% TaxS 12 J Overlay
28% TaxAlternatives:
JSE, Bonds, MM
10% 10% 22% 21% JSE All Share: 11%(3% DY, 10% annual capital gain)
12% 12% 25% 23% ALBI: 4.5% (Bonds)
15% 14% 28% 27% Money Market: 3%
18% 16% 32% 31% Inflation: 7%(5% - Net effect of 20% Dividend Tax)
Section 12J Overlay will beat almost all other investment options substantially after tax
Impact Investment AfricaAgenda
.
The Phenomenal Section 12-J Secret
Unique Institutional Investment Offer
Importance of Impact Investing
Strong Projects and Further Action
Enriching lives through opportunity
.
Portfolio Role
Product DesignValuation and Risk
Liquidity
Investability
Suitability
Legislation: TCF, Reg 28, FAIS …….
No silver bullets. Asset class combinations help to meet
investment objectives.
The investment must compete with other asset classes
The ability to exit can be more important than entry
Investment that demonstrably benefits members and their communities
Product Design – Departure Point
Enriching lives through opportunity
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Investment Process
Commercial Merit
People Risk Technology
Enriching lives through opportunity
.
Return
Risk (Volatility)
Cash – IRR 3%
Bonds – IRR 4.5%
Property
EquitiesIRR 11%
PrivateEquity
VentureCapital
S12J
IIA Fund Minimum Target: 12%
With CapitalProtection
We aim to occupy a unique space with in the Risk-Return spectrum:Enhanced, Risk-controlled Returns
Asset Classes: A Choice Between Risk and Return
Enriching lives through opportunity
.
En • Enhanced
R • Risk-controlled
R • Returns:
Enriching Lives Through Opportunity
I • Investment for
C • Change and
H • Hope
Enriching lives through opportunity
.
Cash Management
Investor Entry Point
Target: 1% to 2% above benchmark
Benchmark in SA is STEFI
Capital Protection
Fee Derived
Also
Investable
Target: CPI + 7%
Equity-like returns. Loss is possible
We offer fund solutions that enhance the risk-reward profile of an overall portfolio
Fund Offering: Entry Mechanism – Botswana & SA
Offering in both Rand and Pula (Also $ in Botswana)
Enriching lives through opportunity
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AgriCash Fund
Investment into high-tech, high margin, cash generative agricultural projects
Target: 12% - 15%
Better than cash and bonds; Capital protected
SME Growth Fund
Investment into SME’s with high growth potential with the right combination of
technology, strategy and capital
Target: 12% to 15%
Better than cash and bonds; Capital protected
Also to follow: Mortgages and asset backed finance
Fund Offering: Operational
Offering in both Rand and Pula
Enriching lives through opportunity
Impact Investment AfricaAgenda
.
The Phenomenal Section 12-J Secret
Unique Institutional Investment Offer
Importance of Impact Investing
Strong Projects and Further Action
Enriching lives through opportunity
.
Impact Investment in VCCs - Elements and Criteria
InvestmentCriteria
4th IR Technology:Margin
Sustainability
Scalability:Repeatable Business
Model
Risk:ManageMitigate
People:CapacityIntegrity
Enriching lives through opportunity
Impact:Smart Structuring: lower regulatory cost
but increase effectiveness
Investment Characteristics:High margin
Strong Cash Flows
VCC investment derived from our institutional projects – similar risk and costs
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Risk: Many “Mythconceptions”
Volatility Inflation
Cash Low High
Equities High Low
THERE IS NO SUCH THING AS A “LOW” RISK INVESTMENTBut
Risk Reduction is Possible Through Mitigating and Managing
Risk is an
opportunitythat must be
managed and
mitigated
Riskhas many forms:
VolatilityInflation
GeopoliticalSociopolitical….
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Most Venture Capital Investments: Off the Charts Excitement
…the failure rate is notoriously high – by experience
Careful Evaluation:Track Record
Current OpportunitiesManager Skill & Ability
Surprise
5 Years
Valuation Pricing Liquidity
Investment Black Box
???!!!
Enriching lives through opportunity
CAGRIRR
(after Tax)
10% 18%
12% 20%
15% 23%
18% 26%
.
Impact Investing: Alternate to Private Equity and Venture Capital
Capital MakingA Difference
Patient Sufficient
Non-rapacious
Commercial Merit, Controlled Risk:Multiple mutual benefits
Tailored for Project Efficiency
Appropriate Investment Timelines
Designed to enhance success for all parties
Enriching lives through opportunity
Meeting the Investor Promise:
Return on Capital;Return of Capital
Impact Investment AfricaAgenda
.
The Phenomenal Section 12-J Secret
Unique Institutional Investment Offer
Importance of Impact Investing
Strong Projects and Further Action
Enriching lives through opportunity
.
S12J: Investment Categories
S12JOpportunities
Existing OperationsCash Generative
Proposed ProjectsPrototypes
High Impact Sectors:• Job Creation• Food Production• Housing• Education
Strong Investor Benefits• BBBEE• Supplier Development• Carbon Credits
Opportunities reflect different return and
sectoral risk profiles to meet different investment
objectives
• Lower Risk• Institutional Suitability• Measured Returns• Proof of Concept Exists
• High Potential Upside Projects• Higher Risk; Higher Return• Late Greenfield/Early Brownfield
Enriching lives through opportunity
Existing OperationsCapital Growth
• Higher Upside• Longer lead time to cash• Measured Returns• Proof of Concept Exists
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IIA Investment Structures
Our S12JOpportunities
Focused VCCs Pooled VCCs
.
• Specific Projects• Targeted Risk• Well Defined Other Benefits
such as BBBEE, SRI etc
• Multiple Projects• Diversification of Risk• Opportunistic
Enriching lives through opportunity
Designed to offer strong dividend income with capital protection
SME Growth Focus:• Education• Technology• Media
Impact Empowerment Ventures (PTY) Ltd
Housing Focus:• Low Cost Housing Units• Student Accommodation• Hospitality Accommodation• Commercial Community Centers
Impact Housing Solutions (PTY) Ltd
Energy Focus:• Solar Energy;• Coal Pelletisation;• Biomass Power Generation
Impact Investment Power Tech (PTY) Ltd
Agricultural Focus: • Intensive Small Livestock Farming;• Controlled Environment Farming
Impact Investment Agri Tech (PTY) Ltd
IIA Section 12 J Investment Offering
Enriching lives through opportunity
Pooled VCC
Relative risks and benefits between the IIA VCC’s
IIA Section 12 J Investment Characteristics
Enriching lives through opportunity
S 12 J Opportunities RiskBenefits: BBBEE, SRI
Carbon Credits
Intensive Small Livestock Farming
Controlled Environment Farming
Solar Energy
Biomass Power Generation
Education/Franchising/Shopping Centers
Impact Housing Solutions (PTY) Ltd
Investor 100% Invested
Underlying Project Pays the
Fees
.Enriching lives through opportunity
Fees: Investors Pay No Fees
Aligns:
Investor, IIA, Underlying Project
Commercial Merit:
Contributes to project evaluation
Performance:
Investment measured on
100% of capital
.
Do Nothing
R1 000 000 Becomes R550 000
(After Tax)
Money Market Income:
R18 900 per annum
(After Tax)
Invest in IIA S-12J
R1 000 000 Is kept in full
Invest for 5 years; Assured Exit
Targeted dividend yield: 12% - 15%.
R96 000 – R120 000 per annum
(After Tax)
Recap of The Tax Effect of Section 12-JR1 000 000 of pre-tax income
Enriching lives through opportunity
.Enriching lives through opportunity
Section 12JPension Funds
PayrollCorporate Cash
Companies: Multiple Benefits and SolutionsIntelligent Structuring for Regulatory Obligations
B-BBEE Solutions
CSI Obligations
Employment
Y.E.S
Staff Benefits
Carbon Credits
Tax Reduction
Retrenchment Solutions
Turning Liabilities into Assets and RoI
.
Thank You
Chris Hart
Financial Market Economic and Business Strategist
Executive Chairman: Impact Investment Africa
[email protected] 480 8634
Enriching lives through opportunity
Enriching lives through opportunity
This presentation was prepared exclusively for the persons to whom it is addressed. This presentation is private and confidential and unauthorised distribution or copying is prohibited.
The content provided in this presentation is not an invitation to the public to subscribe for securities, nor does it form the basis of any contract or constitute the provision of investment,
financial, tax, B-BBEE, legal, accounting and/or any other advice. For advice on these matters and before making any investment decision, we recommend that you consult your preferred
relevant advisers. This document does not contain all the information that you may require, nor is it intended to replace any form of financial, legal or technical due diligence.
The primary purpose of this presentation is to present an investment opportunity to investors in an alternative asset class that offers potential significant returns on capital invested. Some
statements in this document are forward-looking and involve risks and uncertainties. These generally include statements regarding future financial positions, prospects, growth in markets,
projected costs, estimates of capital expenditures and plans and objectives of management for the future operation of Impact Investment Africa, Impact Investment Management or the
various venture capital companies managed by Impact Investment Management. The actual performance could differ from these forward-looking statements.
While all efforts have been made to ensure the accuracy of the information provided in this presentation, neither it nor any of the information contained in it has been independently verified,
and neither ATEV nor the Investment Manager gives any guarantee, representation or warranty, whether express or implied, in relation to the accuracy or completeness of the information, or
that reasonable care has been taken in compiling or preparing the information. We recommended that you perform your own due diligence so as to consider the proposal in the light of your
specific circumstances.
Impact Investment Africa (Pty) Ltd is a licenced non-banking financial institution, authorised as an asset manager by the Non-Banking Financial Institutions Regulatory Authority in Botswana: NBFIRA 10/3/8/I Impact Investment Management (Pty) Ltd is an authorised representative of etfSA Investment Services, a category II financial services provider authorised in terms of the FAIS Act: FSP 40107The VCCs mentioned in this presentation are all authorised financial services providers in terms of the FAIS Act and approved venture capital companies in terms of section 12J of the Income Tax Act, with the following FSP and VCC numbers:
Impact Investment Agri-Tech FSP: 49240 VCC-0118Impact Empowerment Ventures FSP: 49377 VCC-0135Impact Housing Solutions FSP: 49379 VCC-0130Impact Investment Power-Tech FSP: 49375 VCC-0127
For more information on the VCCs mentioned in this presentation, refer to the relevant VCC’s private placement memorandum (PPM) that is available on our website www.impactinafrica.com.
Disclaimer