What social transformation do you see in the asset managers sector in South Africa?

Within South Africa, only about 5% of the wealth is managed by black South African asset managers. Incomes in South Africa are demographically skewed and the investments follow those demographics.  We are in a very competitive industry and I suppose there will always be some incumbents who make sure the newcomers don’t grow as fast as they should.  It is not necessarily a black issue but a competitive industry issue. The stats demonstrate transformation has been slow.

What are Mergence’s competitive advantages?

Mergence has developed a diversified product base. We are the only South African black company that has a revenue stream that is listed and unlisted, and both fully developed. We were also the first to enter the renewable energy space.

What is Mergence current value of assets under management?

We manage 24 billion rand. In the property company that we launched and listed in the JSE we have an additional 7 billion rand. We are always reinventing ourselves and looking long term. Part of our policy is that 33% of all our profits go into subsidising teams in new niche areas. The assets came in but also our team has grown significantly from 2 to 40 people.

What is Mergence criteria to invest in renewables?

We recognised earlier than anyone else the energy challenge with its shortages. We are impact investors and what makes sense is developing a product that meet those structure challenges.

Another challenge in pushing private equity is that the intermediaries are not sponsors to look at the unlisted space because they need to be compensated for that. They need to be paid a different rate for looking at the unlisted space. The intermediaries should also be compensated for the work they are about to do and they haven’t until this stage. That is a big barrier for growth in the South African market.

What has been your expansion outside South Africa in terms of impact investment?

We recently entered Namibia and we are doing a lot of work in Tanzania. The play for us there is going to be private equity and infrastructure spend. The South African landscape, as developed as it is, has first world provinces and third world ones. But for the rest of Africa, it makes sense to go towards infrastructure because that is where the push will be. Yields around the world are very low so there is a search to extract as high a yield as possible.

African infrastructure can generate that yield.

What is Mergence active contribution in those markets?

In Namibia, we wanted to be the first to be awarded on the infrastructure side. It takes courage to invest in this kind of place. In Africa, you don’t have the regulatory framework that is conducive to immediate growth. It means you have to be more committed to the long term.

How much growth do you see for Mergence in the rest of Africa for the next 5 years?

The East African bloc (Tanzania, Kenya, Uganda and Ethiopia), in terms of population, is more significant than South Africa. It makes sense to be present in those areas. Potential consumption is more significant even if the income level is lower.

What is your contribution to social transformation?

I grew up in the townships and one of the things that has informed our departure from the conventional asset management firms is that when I go back to those townships I want to respond why impact investments have been important in a way they understand. If I explain I bought quality stocks on the JSE, it is not meaningful to them. If I built a renewable energy plant that hired so many people, that is impact investment. We also sponsor township sport events and other projects. Part of our ethos is to create shared value, which is making sure we address social needs while generating returns that are expected.