Funding for high-growth black entrepreneurs in South Africa remains a challenge and while there has been some progress made, there remains a clear funding gap here.
With that in mind, we are always looking for innovative new mechanisms and for this reason the BayHill Capital Transformational Investment Portfolio (TIP) fund is interesting.
There are a couple of elements that stand out for us:
1. Its mandate is not only to provide capital for established black-owned businesses but also ultimately should provide black investors a platform for investing in a basket of listed and un-listed investments.
2. The TIP swap for BEE shares
3. The fund is listed on the ZARX exchange providing a secondary market for the trading of the shares
Background to the TIP:
The company describes itself as “a simple, transparent, majority black held investment vehicle with both investment and transformative objectives that seeks to leverage private capital to deepen B-BBEE ownership and multi-level participation in the economy as well as create a platform to optimise wealth creation for predominantly black investors, thereby creating a permanent base of black capital.”
The company will list on the ZARX on 24 April 2018 and will initially hold 273 224 shares in the Sasol Khanyisa scheme and 27 322 shares in Sasol BEE Ordinary Shares.
As the capital base for the fund grows, the fund will seek out further investment opportunities.
The video below will give you a bit of background on the fund itself:
What TIP isn’t
The TIP fund is not for start-up black-owned businesses looking for capital.
The fund is ultimately a vehicle for assisting growth businesses – think Black Industrialist Scheme – with some form of track-record to kick on and to provide liquidity around existing BEE share schemes.
You are going to need underlying assets, cash-flow and some form of collateral if you are looking at them as a funding base.
From my research, the fund is still in the process of building up a funding base, so this is not a quick turnaround solution for working capital for your business.
The TIP Swap
One of the really interesting elements of the TIP fund is the option to use it as a liquidity mechanism for BEE share schemes in JSE-listed businesses.
Many scheme participants find themselves with shares as “collateral” but unable to access the shares for an extended period of time. TIP has created a mechanism whereby investors can effectively swap their BEE shares for TIP shares (once they start trading on the ZARX), ultimately creating liquidity for investors.
As long as there is a buyer for your TIP units, there becomes a way to get around your lock-in period.
The ZARX angle:
There has been a lot of debate and excitement around the arrival of new exchanges in the SA capital markets, but it’s important that this energy translates into new listings and active secondary markets.
For ZARX, this looks like a nice win and an interesting model which can be replicated for a variety of niche investment funds including the proliferation of Section12J vehicles.
It is going to be interesting to watch the evolution of this exchange over the coming year.
If you would like to be connected with the BayHill TIP team, please e-mail me on firstname.lastname@example.org and I can facilitate an introduction.
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